Chrysostomos (Makis) Bollas: How Market Volatility will Affect US Finance Market?

The volatility of the US market has
temporarily dazed the investors and consumers. The question on everyone’s mind
is when to make the next move. In
essence, no one prefers to lose money. Yet panicking isn’t the best way forward
either.

The stock market movements
profoundly affects the American finance market and individual consumers. When
share prices collapse, it can create widespread havoc due to economic
disruption.

The disastrous stock market crash
in 1929 precipitated the now-famous The Great Depression during
the 1930s. Due to this reason, plummeting share prices tends to make headlines
now. Oftentimes, it does affect the US financial market in select
areas.

1.     
Confidence in
Money Markets

The trend of share price movements oftentimes indicate the
expectations of the people and investors. Falling share prices suddenly induces
panic-mode among the consumers and investors alike. The former cuts down on
spending while the latter tend to opt for a safer portfolio. Share prices can
also rise when investors can foresee a recovery within the next 2 to 3 years.

2.     
The Market for
Bonds

A decrease in the stock market indirectly makes other types of
investment more appealing. People opt for other financial options, gold and
government bonds are often the next best choice. These investments offer better
return on investment in uncertain times. Interestingly enough, the trend to
purchase these investment commodities always been high during economically
uncertain times.    

3.     
Short-termism

The market volatility also affects the companies that are listed on
the stock markets. As is the case, shareholders expect larger dividends from
their investments. Due to this reason, in a bid to fulfil these aspirations,
companies will resultantly increase the short-term profits to meet the desired
numbers.

4.     
Decreased
Pensions

Retirees with private pension and those associated with investment
trust(s) are undoubtedly affected by the shifty stock market movements. Pension
funds are active investors in stock market. Ergo, a prolonged fall in share
prices ultimately decrease the final pay out of the pension amounts.

In an undesirable scenario, when share prices fall too much, the
pension funds will be unable to fulfil their ‘larger than life’ promises. This
will inadvertently affect many households in turn.

5.     
Effect on
Wealth

The
consumer spending halts as well. The spending on clothing and food drastically
decreases in uncertain times. The numbers are even higher when unemployment
rises. This is why consumer spending is also affected when market is volatile.

In
an uncertain market, the housing market also takes a backseat and awaits the
market to stabilize overall. Sellers halt selling and wait for a more opportune
moment. 

6.     
Enforcement of
Tariffs

With the imposed tariffs on imported items, the consumer spending
will shift towards American-based products and other countries on which tariffs
are not yet imposed. This incidentally means that America is purchasing more and
exporting quite less when compared to its exports. This usually results in
trade deficit and paves way to market volatility. Markets will be more volatile
in the next few months with the rollout of tariffs.

Chrysostomos (Makis) Bollas (BSc, ACPA, AAIA, CIPFA Affil) has more than 15 years of experience in International Tax Advisory, he is a senior Partner at AMP Group. Amp Consultants, AMP Advisors UK and Founding Member of the Association of Certified Financial Consultants.