Long-term Investing

Why markets are drowning in uncertainty

It's been a hot summer for some, with U.S. stock markets breaking out to fresh highs in July, and European investors debating whether to dip a toe in the water on the back of more European Central Bank (ECB) action. But as thunder clouds roll in, and after Wall Street suffered its worst week since mid 2012, a solo swim does not seem all that appealing.

Read MoreWorst weekly drop for S&P 500 in more than two years

Just as life guards warn not to swim in water you don't know, does the same apply to guardians of funds, as the markets they're being asked to trade look murky and unfamiliar?

Central banks haven't made decision-making any easier. Is the Federal Reserve still buoying asset prices to nurture recovery, or is it turning into a monster of the sea as it slows asset purchases and considers interest rate hikes?

Historians know it is never a smooth ride as rates climb. "The number of times that the Federal Reserve has hiked interest rates without a negative economic or market impact has been exactly zero," said Lance Roberts of STA Wealth Management.

Short-term trading is no easier, based on musings from the boss of the Fed. Janet Yellen caused sweat on the brows of those long technology stocks when she warned that there is too much heat in social media stocks. But taking Yellen's advice would have meant missing an earnings-inspired spike in Facebook, Twitter and LinkedIn, perhaps one of the sauciest trading opportunities of the summer.

Gautam Batra of Signia Wealth accuses central banks of messing with the seasonals. He said we're still witnessing the usual market roll over. "It was just delayed after the ECB launched fresh stimulus."

The ECB's actions were welcomed initially, but the fresh liquidity has not been enough. Confidence about the pace of recovery is waning, particularly after the latest data cast a shadow over the summer. The inflation rate risks dragging Europe under, while PMIs for France, Italy, Germany, even the U.K. indicate a cooler breeze, as all faced choppier manufacturing conditions.

But perhaps geopolitics should take some of the blame. Ukraine, Russia and the Middle East have all had an impact on the confidence game.

Stocks ignoring geopolitics? That's nothing new

A string of firms, including Michelin, Societe Generale, UBS, and Adidas are eying their Russian strategies amid fresh sanctions. Some chief executives are willing to wear the losses for now, in the hope sanctions will be lifted. Others believe expansion strategies in the region are drowning.

The question is where to from here. Will the rest of summer leave us desperate to come back on St Leger day, which seasonal junkies mark as the official end to the summer punishing on markets? Unfortunately, any relief from a correction may give way to listless trade. Some asset managers are already forecasting a flat finish for the year.

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