Was it only yesterday when I said we’re unlikely to see a full blown stock market crash?
Overnight, the Dow plunged 800 points, or 3.2 per cent.
Worse, the tech-heavy Nasdaq index sank 4.1 per cent.
Not surprisingly, ASX shares are taking it on the chin today. As the old saying goes, when Wall Street sneezes, the ASX catches a cold.
The S&P/ASX 200 index is down 144 points or 2.4 per cent in Thursday afternoon trading.
As to how big of a cold we catch, it’s anyone’s guess.
Stock markets are falling because US bond yields have jumped higher in anticipation of higher inflation.
To counter higher inflation, the US Federal Reserve will have to keep lifting interest rates, perhaps by more than was previously expected.
For the average stock market investor, the US bond yield is as dull as dishwater. But it matters because it’s what the global price of money is based off.
And it will impact us here in Australia.
It’s already doing so because the ASX is falling in tandem with Wall Street.
Because Australian banks have to top up their borrowings from offshore markets, they will be paying more in interest, a cost you can bet will be passed onto consumers in the form of higher mortgage rates.
That this comes at a time when house prices are already falling in Sydney, Melbourne and Brisbane.
House prices to fall 15 per cent says Morgan Stanley
Morgan Stanley have today said house prices could fall by as much as 15 per cent peak to trough. It would be the largest decline since the 1980s.
Those thinking the RBA’s next interest rate move is up might want to reconsider.
AMP’s Shane Oliver recently said he thinks the RBA will keep interest rates on hold out to 2020 at least, but also says the next move in rates could still turn out to be a rate cut. Mr Oliver cites the risks around house prices and consumer spending.
Falling house prices will hurt consumer confidence. They’ll also hurt summer BBQ conversations.
What will Aussies talk about if they can’t boast about how much their house is worth?
It’s not as if we can talk about the triumphs of the Australian men’s cricket team. The comprehensive Ashes victory of less than a year ago is but a distant memory.
Maybe we can talk about the stock market. I mean, anyone who’s grabbed a few Afterpay Touch (ASX:APT) shares or a slice of WiseTech (ASX:WTC) shares or some Appen (ASX:APX) shares over the past year or so should be in seventh heaven.
Problem is, right now, you’re probably hurting, given they are all down around 10 per cent today.
Instead of looking at how much our portfolio has gained in the last 12 months, we look at how much money we’ve “lost” today.
Headlines like “$50 billion wiped from the ASX” don’t help either.
As I write, fall in the Australian share market is accelerating.
It’s not quite a full-blown panic, but there are signs of indiscriminate selling.
Of course, the stocks mentioned above are highly valued. Fund managers have been warning about “vastly inflated” valuations for some time. The day of reckoning is here.
2 shares to buy on a day like today
Investors will be fearful of a full blown stock market crash. All those hard fought for gains blown up in smoke in days. Such is investing.
As ever, we live to fight another day.
Regular Capital Club readers will know I’ve long suggested you run decent cash balances, up to as much as 20 per cent for self funded retirees.
That cash will be earning its keep today. It will help you sleep well at night, and gives you firepower to add to your investments when stock markets are lower, as they are now.
I’ve put my money where my mouth is, adding some cash to a couple of funds I own.
Top performing fund managers should be “enjoying” the opportunities such indiscriminate selling brings. I’m happy to let them do the work, with me reaping the rewards some time in the future.
Amidst all the selling, and rising bond yields, remember that the global economy is growing at a decent clip. A growing economy brings growing corporate profits. Eventually and inexorably, share prices follow earnings growth higher.
Hold your nerve. Invest cash. Hold shares.