The sharp sell-off in global stock markets may end up being a very temporary event, but I thought subscribers might appreciate a comment before I leave for ‘riot-torn’ England. The latter picture of nationwide strife would be my conclusion based on the BBC news website, although not from others.
I am aware that the Japanese market has bounced back strongly this morning, but that is not enough news to form any conclusions about what will happen next in other markets.
What I can say is that the sell off we have seen has very little to do with fundamentals, except that tech stocks, notably those connected with AI, had become overvalued. That I have already warned about a few weeks back.
The only evidence that there is any sort of slowdown in the US economy is weaker numbers on employment and the strong numbers before were reported to be upsetting the Federal Reserve and keeping interest rates higher!
The weaker numbers may help the bank make a decision to lower interest rates sooner or even by more but predicting a global recession (which is what markets are said by some to be doing) from such limited data is plain foolish.
It fits rather well with my recent piece on behavioural finance that the FT suggests that markets are at risk of creating a self-fulfilling event by imaging a recession that has not yet happened. Nothing to fear except fear itself etc…..
The next few days will give us more idea of what the ongoing permanent market trend will be, but I see the macro climate as remaining generally benign. If anything, it just got better for fixed income. I hope readers already took profits from their high flying technology funds on the back of my previous observations.
Definitely not a time to panic but a good example of how markets that have run up strongly over months will correct in hours when there is a collective psychological meltdown. If you have a lot of profit on the table, you are very likely to rush to bank it at the slightest hint of bad news and the first to sell gets the best price, so get a move on! It’s just human nature.
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