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Volatility is the word the market professionals use to describe what's happening in shares over recent weeks. It covers a multitude of sins. The slide in share values may not have an immediate impact on the economy but it will make a significant economic slowdown in 2008 that much more likely - the Bank of England has already made it clear that it is explicitly trying to slow the economy down with its base interest rate rises.
Will interest rates rise again as some believe they will in September? Maybe, but the share market slump, if it persists, does make that prospect a little less likely. The housing market will deflate that bit faster as a result of the shares slide - making the need for another rate rise less pressing.
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Investors are obviously immediately poorer than they were. That doesn't mean that now is the time to sell. Classic investment theory does not support the idea that you sell when share prices are falling, it tells us that now might, in fact, be the time to buy!
Read a full analysis of the impact of the stock market falls and their likely impact on you and your finances: Dead cat bouncing? How will the stock market slump affect you?
13 August 2007 © Moneyextra.com
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