Mid-Term Market Update: Why Stock Prices Are Falling And How To Deal With It

• Stock markets fall sharply
• Investors concerned about Israel and Iran 
• Stay calm and focus on the long term

Stock markets fall sharply

After three months of strong price gains, stock markets dipped solidly this month. The US S&P 500 fell 5.5%, the European Eurostoxx 50 3.3% and Japan's Nikkei index as much as 8.2%. This can be a bit of a shock, especially if you are investing for the first time or have not experienced a stock market dip before. 

In this mid-term market update, we explain why prices are falling now, and what you can best do in such a situation. 

Investors concerned about Israel and Iran 

There is much unrest in the world due to rising tensions between Israel and Iran. Both countries possess nuclear weapons, making a war between the two a potentially major risk to the world. On top of this, there is the potential for other countries in the region to become involved in the conflict, which could have a major impact on these countries themselves and the global economy. Consumers are more likely to hold back in uncertain times, which affects companies. 

In addition, a conflict in the Middle East could cause oil and gas prices to rise. This makes investors nervous, and some take the safe bet and sell some of their investments. As a result, prices go down. 

US interest rate cuts further out of sight

A second major reason for the share price falls is that the US Central Bank (the world's leading central bank) is pushing back planned interest rate cuts for this year further, or perhaps even postponing them to next year. This is because the US economy is still growing strongly, the labour market is tight and inflation is higher than the US Central Bank likes to see. 

For investors, this news is a setback. Of course it is great that the economy is doing so well, but they had been counting on interest rate cuts (something that is good for the economy) and that is not happening for now.

Stay calm and focus on the long term

At the beginning of April, we wrote in our market update that after a period of strong price rises, you have to be mindful that there will also be times when stock markets (temporarily) fall. Unfortunately, this is happening now. It’s good to repeat what we indicated then: stay calm and focus on the long term. After all, these kinds of periods are part of investing and happen from time to time.

Periods of price declines also bring opportunities

If you are new to investing or have never experienced a market dip before, a price drop can be quite scary. But remember that you are buying in at lower prices during market dips. If prices rise again in the future, you will benefit. Therefore, it’s probably best to stick to your strategy and remember that in history, global markets have recovered from every crisis so far. If you keep investing regularly and take the long view, it will eventually work in your favour.

Investing always involves risks. Know that you could lose (a part of) your invested money.