Recently, market shares lost about 10 percent of their value.
This brought them into "correction area", and has led to widespread fear that a bear market is emerging
It is still early, but I suspect this turbulence in stock prices will turn out to be a fairly mild fake crisis
Compared to other fake crises that are experienced in submarkets, especially those in 1994 and early 2016, this has fewer concerns. This is why:
The US economy has grown noticeably stronger in recent months, with little evidence of a significant slowdown or an early recession
Corporate earnings in the US were 25 percent higher in the quarter in June than in the quarter of June, and analysts had predicted (correct if it came out) that US profits in the September quarter would be more than 20 percent corresponding quarter of a year ago.
Although largely a one-off (and related to the reduction of corporate taxes by Trump), the strong increase in earnings was previously mitigated because the valuations of US stocks were pushed to the limit. In July and August, Australian companies reported on average what many people considered "solid" financial results.
ï¶China has seen some moderation of growth, but also a relaxation of monetary policy.
bondIn the United States and Australia bond yields did not fall much, as shares were deposited. And Australia's yield curve for government bonds remained comfortable under the US yield curve during the bad days of trading.
ï¶The prices for our bulk goods, especially iron ore, remained well supported in October and early November.
The Australian dollar, which often pops up when global market shares collapse, is kept reasonably stable. (It was very weakened in September, especially against the powerful dollar, when the foreign exchange markets believed that the dollar would be "contaminated" by the problems in Turkey, Argentina and South Africa.)
Sentiment in Mark changed extremely gloomily on the day that "$ 52 billion was wiped out of the value of Australian equities". But some highly regarded stock investors and strategists kept their composure and were looking for opportunities.
I was particularly impressed by the report that Frank Macindoe, a consultant and partner at Koda Capital, spread during the panic. He pointed out that we should never have confidence in predictions for the short term, because the sharemarket in that period is largely determined by sentiment and herd-like behavior; however, investors should always recognize that there are many more corrections to share prices than there are bear markets in equities.
He recorded the graph that I have reproduced today, which shows that for every bear market (declines of more than 20 per cent) experienced in US stocks since 1974, there have been more than four corrections (a decline with 10 percent). This means that more than 80 percent of the equity market corrections in the US have not become bearer markets since 1974
"It is worth remembering," he adds, "that a real bear market is almost always the result of a recession, and there are only a few direct signs of this, although the indebtedness of American companies is a concern is
.
"Australian companies may have never had a lower debt ratio
& # 39; & # 39; Some growth stocks (including CSL (AX :), Cochlear (AX :), REA (AX 🙂 and Seek (AX :)) have already got off the ground (especially after reporting good results) and now we are just seeing that their prices return to the trend.
& # 39; & # 39; Some stocks with good long-term activities have come back for a long time and I would like to buy it now. "
Frank's words brought me the observation, Paul Samuelson, a famous American economist, put forward in 1966: "The American share market has predicted nine of the last five recessions." In addition, the recent stock price crash has taken the view of many investors who have sharemarket returns unacceptably volatile.
However, for equity investors, stock price volatility creates a useful reward for investors.
Finally, it is compensation for the volatility that has increased the long-term yield of Australian equities to the attractive rate (pre-tax) of 10 percent per year and 7 percent in terms of inflation after inflation
Don Stammer is an advisor to Altius Asset Management and Stanford Brown Financial Advisers. The opinions expressed are his.
