The uncertainties of market falls

I don’t know what is going to happen in the markets over the next few days so I am going to time stamp it. I am writing this blog on Thursday, 10 April at 08:17. I had planned to write this article earlier in the week as markets were plunging and people were getting nervous about the continued fall in value of their investments and pension. On the drive home from work yesterday evening, I was listening to how the whole US financial system was on the brink after a sell off in government bonds. On the way to training a few hours later, the stock market was rallying after Trump put a 90 day postponement on tariffs, except to China.

We (advisors) talk to clients about there being crashes all the time. We use average annualised returns to calculate future expected returns. If we use a 6% average and the markets returned 20% and 30% over the last two years, there will have to be negative years somewhere to get to that 6% average return.

While we know there will be crashes, there are the unknowns.

There is a 10%+ correction at least once a year. When some of these happen, we don’t know if it is the start of the next big one or something that will be corrected in a week or two. Some say there is a crash every seven years but I don’t buy into that, these events don’t watch the time. Covid was caused by a pandemic whereas the Trump tariffs were caused by the economic decisions of the president of the United States!!

We don’t know what is going to cause it. The major crashes of my working life are:

Some will point out that Trump did tell people that he was going to impose tariffs. As is the case with Trump, people do not take him literally all the time; when we really should. Those who voted from for him will say they voted for cuts to taxes and regulation, not raise prices of goods and a fall in value of their investments.

As we saw in The Big Short, there were some people who saw what was going on in the financial sector, but they were the exception. The market certainly didn’t see what was happening or the magnitude of it and the impact that it would have.

I remember going to investment talks as the financial crises was taking hold. No one really knew what we going on, especially the fund managers giving the talks. Markets were down, then up, next thing there was runs on banks, then major banks were going bankrupt.

Thousands of people were laid off and it wasn’t just in the financial sector. As banks couldn’t lend, construction stopped, so contractors and trades people were out of work. All the industries servicing the economy were impacted as no one had money to go out.  It is still the scariest time in my working career to date.

Covid 19 would have been worse if central banks didn’t step in as quickly as they did in pumping money into the economy and governments didn’t ensure that those who couldn’t work still received money.

The financial crises went on for a long time. From peak to trough, the Global Stock Index lost -53.48% of its value over 1 year and 9 months. That is a long time for investors to be losing money. It wasn’t straight down during that time either, there were times of upturns before markets would plummet again as more news about the state of the financial sector broke.

Covid saw markets fall by a stone. In just over one month, markets fell by -33.76%. It took 1 year and 4 months for markets to fall that far during the financial crises. But central banks and governments had learnt from the financial crises and reacted quickly. If they hadn’t it, would have been a lot worse and there would have been industries going our of business (airlines around the world would have folded without central banks propping them up).

But history has always told us that markets will recover. The longer we leave our money invested, the greater the chance of a positive return in all circumstances.

Steven Barrett

14 April 2025