This popped up late last week:
‘Don’t be terrified’: experts call for calm after a wild week on global markets
7:38PM August 09, 2024.
The Australian Business Network
Bell Potter veteran stockbroker Richard Coppelson was having to reassure some nervous clients this week.
“Corrections are just a normal part of the market,” he wrote in his daily newsletter.
“Don’t be terrified each time one hits. While the sell-off has worried many and it looks chaotic, the truth is that it is a sign of a healthy market. You should expect two or three 5 per cent corrections and one 10 per cent correction every year.”
“Coppo” was writing after a volatile start to the week, which saw the Australian market lose almost 6 per cent over two days (Friday, August 2 and Monday, August 5), wiping almost $160bn from its value in its largest two-day fall since the pandemic in March 2020.
Days before, he had summarised Monday’s market in more bearish terms, describing it as the “worst day since the pandemic” with the markets “smashed on US recession fears”.
“US futures smashed, Asian markets and cryptos whacked, US market under siege,” he wrote.
“Sahm rule (predicting a US recession) triggered,” he said, warning that “US corporate insiders are dumping stock at the fastest rate in more than a decade”.
While the Australian markets stabilised later in the week, one player described the market as having conflicting views, with some seeing global sharemarkets having an overdue correction after some major gains, while others were more worried about the outlook. “People are nervous,” one executive with a global executive bank said. But at the same time, he pointed out, there were plenty of cashed-up Australian investors looking to buy on the dip.
“We have been expecting the market volatility for a while,” Ord Minnett chief executive Karl Morris said. “This has been the hardest market I have ever seen because there are so many things happening at the same time – from elections to the political risks and wars.”
While some of these could have prompted a market “meltdown”, he said the past year had seen a “melt up” where prices had continued to rise, particularly tech stocks.
“We have been surprised how strong the markets have been. People have been expecting this (market volatility) for a while.”
But he said investors in Australia were now considering whether they should “buy on the dip” or wait longer to see if shares fall further. Trading volumes had been up on Friday and Monday as the ASX fell, Mr Morris noted.
He said there had been overoptimism in the US market about the earnings prospects from artificial intelligence, which had boosted the prices of tech stocks.
“The only people who are making money out of it are the chip manufacturers and people selling the dream. A bit of reality is setting in,” he said.
Mr Morris said the Australian market had “settled down” towards the end of the week with trading volumes coming down to more normal levels. But he said he was still expecting “volatility” on world markets would continue.
“We don’t see this as being the end of volatility, especially when markets around the world are pretty fully priced. Valuations in some parts of the market are still extremely high.”
The Australian market was “still substantially above where we were a year ago”, Mr Morris said. “There have been a lot of reasons where, normally, markets would pull back, but they haven’t. They have just kept going up.”
He said there were also concerns in the US whether the US Federal Reserve had been too slow to cut interest rates and could push the US economy into recession. But there was “no real panic from any of our clients”.
Matthew Haupt, a lead portfolio manager with Wilson Asset Management, said the sell off in the Japanese and Asian markets on Monday, with the Japanese market down by more than 12 per cent – its biggest one day fall since 1987 – was “historic”.
“It was pretty intense,” he said.
Mr Haupt said the fall on Monday in Japan had been sparked by weak US jobs data on Friday night which triggered concerns about whether there could be a recession in the US.
He said the prospect of lower US rates and higher rates in Japan had prompted a “deleveraging” by investors who had borrowed cheaply in Japan to invest for higher returns offshore.
Weaker than expected economic data from the US and a tightening of Japanese monetary policy began to change the investment equation.
“The yields in America fell, which made the yen rally, which meant all the carry trades had to be closed,” he said. “These deleveraging events are quite quick but painful.”
He said the past few days had seen “a bit of normalcy come back into the market” but he said nervousness and the prospect of further unwinding of the carry trade “mean it is still bubbling away”.
“We are probably half way through the deleveraging (process) but there is still more to go.”
Mr Haupt said next week would see more focus on local factors as the annual results of companies started to come out.
“We are watching earnings season in Australia now. The results are starting to trickle in now. But the level of uncertainty is still high because of the deleveraging and the uncertainty about the US economy. Markets don’t like uncertainty and we got a real dose of uncertainty this week.”
A bank holiday in NSW last Monday would have normally been expected to have been a quiet day trading day.
But the Australia market had already begun its fall on Friday on concerns about a fall in US tech stocks. Concerns that the share price of companies like Nvidia had overshot were exacerbated by the announcement last week that Warren Buffett’s Berkshire Hathaway had sold more than half its holdings of Apple shares.
The unexpectedly strong increase in interest rates by the Bank of Japan on July 31 and rhetoric that the central bank was looking at more tightening of monetary policy was also causing problems in global markets as investors who had borrowed cheap Japanese currency to invest in the US and other markets, were forced to unwind some of their positions.
At around midnight on Friday last week the US payrolls data also indicated that the US economy was weaker than expected. The figures sent Wall Street down with talk that the figures had triggered the Sahm indicator of a recession. When traders in Australia came to work on Monday for their pre-market meetings they were expecting a bad day.
What caught them by surprise was the rout in the Japanese market which plunged by 12.4 per cent, the biggest one-day fall since 1987 stock market crash, on concerns about the Bank of Japan raising rates.
Investors were also selling out of Japanese bond and equities as “the carry trade” – which had allowed investors to borrow cheaply in Japan to invest offshore – began to unwind.
The Australian market had had the roughest two days since 2020, but the drop was nowhere near the big market falls of March 2020 amid fears of the implications of the Covid pandemic.
There were big fears in Australia of another fall on Wall Street on Monday night, but nerves calmed on Tuesday when it didn’t happen. By Tuesday afternoon the focus in the Australian market was back home, with the statement from the Reserve Bank that it was keeping rates on hold and news from the press conference that rates were not coming down any time soon.
There was welcome news on Wednesday from the Bank of Japan that it was backing off its plans to further hike interest rates, aware of the disturbing impact that its rate rise of the week before had had on global markets.
But when Australian traders came into work on Thursday there was bad news from the US that a 10-year US Treasury auction had not gone as well as expected. US investment banks were raising the prospects of a recession, with JP Morgan declaring that there was a 35 per cent chance that the US economy would fall into a recession by the end of the year – up from 25 per cent at the beginning of the year.
Close attention is now being given to intra-day movements as investors are trying to get a clear sense of direction in markets.
“We need these intra-day movements to settle down so we can get a clear sense of direction,” said one market participant.
“People are moving their money out of these high-growth plays into ultra-defensive areas – market staples.”
Rob Nash, ASX’s head of equities relationship management, said the market falls of Friday and Monday were nowhere near as steep as those in March 2020.
He said Monday had seen a total of almost $11bn in shares traded across the two exchanges, which was above more normal days of around $7bn to $8bn. But the “bounce” in the market on following days had seen volumes go back to normal.
The Australian share market had not rallied as much as those in the US and Asian countries such as Japan and South Korea over recent months as it did not have the same exposure to technology stocks. This was giving the Australian market more of a buffer as tech stocks in other markets fell. “The markets which had a heavy exposure to tech, including the Asian markets, rallied the most on the way up,” Mr Nash said.
Here is the link:
It has been a big week on the markets last week – and given how many of us have Super invested in the self same market the losses have been a bit harrowing for many.
We have had all sorts of breathless, alarmist headlines but in the vast majority of cases we know the best thing to do is just let the hubbub pass and see where we are in a month or two – as it is more than likely the fuss will have passed and we will all be back to normal.
FWIW I can assure you it is pretty much certain that the markets and all our portfolios / super will be back to normal in a month or two and importantly the health system will have trundled on doing all the good things it does quite undisturbed!
The point is that the market is not the real world for most and that while interesting it is only in the most exceptional of circumstances should we be really concerned!
My rule is that I will worry when Alan Kohler on the ABC news tells me to – and before that I will remain calm and relaxed!
The lesson is to only worry about what you can change / improve and ignore the ‘noise’ – and more importantly only sell or buy when your adviser tells you to!! Unless you are a real expert the best thing is to take the advice of the real experts!
In broad terms the same goes for how you treat your health!
David.
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