This week in the markets - investors braced for volatility

Investors are braced for a rocky week after Asian markets tanked after bad jobs numbers spooked Wall Street and triggered fears of recession, and as tensions rise in the Middle East.

Global markets have taken a significant step back as the week gets underway with the Japanese market in particular suffering heavy falls.

European markets woke to news of a 12.4% fall in the Nikkei index. The FTSE 100 opened more than 2% lower and the Eurostoxx 50 down almost 2.5%. That follows 1.8% falls for the S&P 500 on Friday - US shares are expected to fall again when the market opens later today.

• Investing during days like this can be testing - but there’s plenty of reason not to worry. Check our updated pages on investing in uncertain times.

US jobs a tiding of recession?

The causes of the falls take some untangling. Friday brought some disappointing jobs data in the US with American employers adding only 114.,000 jobs in July – short of the 180,000 additions expected by economists, and a marked decrease from the 179,000 added in June.

This led to fears that the US economy was slowing and could even fall into recession. This feeling was compounded because the Federal Reserve had decided just days earlier to hold interest rates instead of cutting them - adding to a sense that the Fed may have moved too slowly in heading off a downturn.

Consensus is now building that the Fed may have to move faster and deliver a half-percentage-point rate cut at its September meeting. The market now expects US rates to end 2024 in the 4.00% to 4.25% range.

The heavy falls in Japan’s stock market may be explained by the fact that its central bank has just raised rates, meaning an increasing divergence between rates there and the rest of the world. That puts upwards pressure on the value of the Yen, something which tends to squeeze Japanese shares.

Tech squeeze

All this has happened as the largest tech companies, which have been the driver of returns for so long, have been buffeted by mixed earnings results. Results from Google, Microsoft and Amazon all disappointed. Apple reported a quarterly rise in revenues but saw only a small rise in its share price. Of all the Magnificent seven companies only Apple and Tesla saw a rise in their value across earnings season.

If that wasn’t enough to rattle markets, the threat of a wider conflict in the Middle East has increased after Israel targeted militant leaders of Hezbollah and Hamas in Iran, with the Iranians warning the act must be punished.

It isn’t only stocks that have been falling. Bitcoin is now down almost 18% over the past five days. Meanwhile, oil is trading near eight-month lows, at $77 a barrel, with the market seemingly more worried about a global slowdown that it is fighting in the middle east which could disrupt supply.

Bonds offer sanctuary?

For investors looking for silver linings, the bond market appears to be doing its job as a hedge against falls for shares. The yield on 10-year UK Gilt has fallen from 4.14% to 3.84% over the past two weeks - falls in yield translate to gains for bond prices.

The UK corporate calendar this week includes updates from asset manager Abrdn, InterContinental Hotels, Legal & General, Persimmon and Hargreaves Lansdown.

Why the smart money won’t be panicking

The coming days could be difficult for many assets as this round of uncertainty plays out. Stock markets have been enjoying a strong year of gains - the MSCI World Index is about 14% above where it was 12 months ago - and the current falls are unwinding some of that.

Some of the assets that have driven returns most strongly are now very highly valued and a de-rating has been forecast by many.

During times like this it makes sense not to rush investment decisions, which risks compounding losses. Those investing for the long-term - including those saving for retirement and with several years until they need their money - should not fear market falls. It may seem counterintuitive but falls can be often be helpful to your overall return because they give you the chance to buy assets at lower valuations. The trick is to keep investing and give assets the chance to recover.

And they do tend to recover.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Direct shareholdings should generally form part of a well-diversified portfolio of other investments. Overseas investments will be affected by movements in currency exchange rates. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.