Join Master Your Money | Online Wealth Coach

Where's all the share market volatility coming from

There is quite a lot of talk about volatility coming back to share markets all of a sudden, and with the talk there’s also bit of conjecture about where the volatility originates from.

Some say it’s because interest rates and bond yields are beginning to rise; others will point to the end of quantitative easing in the United States and elsewhere for the bumpier ride.

The return of inflation has been mentioned quite a lot recently as a reason why share markets are jumpy all of a sudden, by what has the return of inflation in the United States really got to do with share market volatility?

The link between share market volatility and inflation has to do with the recalibration investors are making to their expectation of share market performance, according to Dr Shane Oliver, AMP Capital’s Chief Economist.

The reason we have the volatility is simple, Oliver says:

“Investors have been used to low volatility for so long, low inflation, low interest rates low bond yields and that was factored into many investment markets share markets. Now we are moving into a world of possibly higher inflation, higher interest rates, investors have to reprice and adjust their expectations,” Oliver explains in this interview with AMP Capital TV.

Further, there’s a bit of a battle of the “bulls and the bears” taking place at the moment, Oliver adds, pointing out that some market watchers and investors see an uptick in inflation in the United States as a good thing, while other investors are focusing on the negative impact of the transition that’s taking place at the moment.

“If interest rates go up, bond yields go up, that makes share markets a little less attractive compared to bonds and cash at the margin, and investors need to make that adjustment,” Oliver notes, explaining the rational for the dips we’ve seen in markets this year.

Share markets dropped over two consecutive days locally in early February, led by even steeper falls over seas, before recovering their losses towards the end of the month.

Meanwhile, there’s a silver lining for the more optimistic share markets watchers, Oliver adds.

From higher inflation and higher interest rates, you’re also getting potentially higher profits growth, he says.

“An uptick in inflation is not a bad thing, but investors have to adjust their expectations and that’s what’s causing the volatility,” he says.


Source: AMP Capital 12 March2018

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

Looking to reach and
exceed your money goals?

Master Your Money | Online Wealth Coach is your step-by-step guide to insider financial planning secrets in a 12-module online format, covering every money-topic for all financial circumstances.


Provided in an easy to digest and hands-on format, the platform was built with you in mind so that you feel empowered to reach your financial goals, at your own pace in the comfort of your home!


  • Unlimited Wealth Coach Access
  • Downloadable Wealth Bundle with Worksheets and Resources
  • Access to Supportive Facebook Group