So, markets have been behaving weird this week. It all started on Friday night with the US jobs report revealing a significant slowdown in hiring, with unemployment rising to its highest level in three years. This sparked fears that the world’s largest economy might be slowing sharply and that the Federal Reserve had delayed cutting interest rates for too long. Consequently, US markets fell, with the S&P down 1.80% and the NASDAQ (tech) down 2.40%. On Monday, Asian markets mirrored this sentiment, with Japan dropping 12.4% in a day and Australia falling 3.8%.
Why is this happening? Fear and greed. Markets are driven by emotion, the “animal spirits” John Maynard Keynes famously spoke about. Up until recently, markets were driven by greed, any bit of bad news was absorbed like it was nothing, all good news was taken with joy and powered the markets on. Nvidia was going to the moon, AI was going to drive earnings immediately, rate cuts were coming to save us. YAY!
For whatever reason sentiment has changed. Fear is taking over. How long will this last? Who knows but it is helpful to assess the current falls in context. As of this morning, the 6th of August 2024 the recent falls and trading days required to get there:
Overall, when you look at the numbers and not the headlines, this correction is nothing too unusual. A market correction is typically defined as a 10-15% drop from recent highs. The dramatic single-day falls might make for scary headlines, but within the broader context of a correction, what we’re seeing isn’t unusual yet.
Benjamin Graham once said, “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” Did the markets get too far ahead of themselves in the short term? Maybe. Is this a temporary blip or something more significant? I don’t know. Are we going to hell in a handbasket? Probably not. What I do know is that times like these, when things seem chaotic, are when your discipline and structure should shine. When everyone else is losing their heads, it is time to maintain yours. Know what you’re invested in and why you’re there (your goals). Ensure your portfolio is well-constructed and you understand your risks.
I have been around markets for a long time now. I am showing my age, but this is certainly not my first rodeo. I have been there for all the big market corrections – the Asia crisis (1997), tech boom/tech bust (early 2000s), GFC (2007/08), European crisis (2009/10) and the Pandemic (2020). I wasn’t around for the 1987 crash; thankfully I am not that old! I have been concerned about markets for a while, so none of this is a surprise. I’ll watch and wait to see how things develop. In the meantime, always remember that in the long term, markets go up more than they go down. This is why they are good investments!
Kind regards,
Shelley Marsh
Outsourced Chief Investment Officer (OCIO) & Founder
Wealth Differently
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