Market volatility

By Mark Dampier | 18 Aug, 2008 

Markets have continued their incredible volatility. What in the industry is called a vicious sector rotation has been going on for the last couple of weeks with banks, builders and many of the high yielding stocks which have been hit so badly, bouncing strongly. While the strong sectors of oils and mining have been hit badly. The oil price has declined by some 20% but I have to say this is not an unusual occurrence having happened on twelve occasions since 1999. A pull back from what looked to be a very big move upwards I think is hardly surprising.  

Falling oil prices could just come to the rescue of the central banks in the UK and Europe giving them a potential window to lower interest rates. However the price of oil, even if it falls to $100 is still extremely high by historic standards. It is really far too early to say whether this trend will continue although I would agree that, with global demand slowing from former extremely high levels, you might expect commodity prices to at least for the short term fall in price. However before people get too carried away with the thought of lower oil prices I will leave you with this quote from Investec. “The oil industry needs to carry out at least a further ten years of significant infrastructure investment to deliver any meaningful production growth and to rebuild a reasonable spare capacity cushion. This is an exceptionally robust long term outlook.”

This might just suggest that what we are seeing is therefore another long term buying opportunity. I believe The super-cycle is not dead; it is just having a huge pause for breath.