The market took a tumble this morning, after Wall Street got the jitters. Those same jitters it's had a thousand times before, to the point it should simply be headlined 'here we go again'.
In the US, "Indexes suffer worst day since July" screamed the headline. No, not July 1999 or July 2007, but July this year. No, you haven't fallen asleep, Rip Van Winkle-style… July was only two months ago. 60 days. Around 45 trading days.
One day in the last two months had to be be the 'worst', and it happened to have been overnight. And so, apparently that's a big deal.
The Australian market predictably opened down this morning, and remained so at the time of writing. Maybe it'll be the worst day since July. Maybe not. And it won't matter a zac.
The correction they've been predicting… for years?
It was only last week some prognosticators were wondering if a few negative days in a row was the start of the so-called 'correction'. Not so much — at least for now. That won't stop them guessing again in a couple of weeks' time if we have a run of negative daily returns. At some point they'll be right — and say 'I told you so'. Which they did… maybe two dozen times before they were eventually 'right'.
But back to the US. Something terrible must have happened, right? It sure did — the economy is looking good. Yes, you read that right. The US move away from 'emergency' interest rate levels is looking more likely now than at any time since the GFC. Which is unquestionably good news. The patient is improving, and can be taken out of intensive care.
Which the market seems to hate. Yes, yes, rising interest rates mean higher debt costs for business, and increases the 'risk free rate' on which investing is theoretically based. But if I have to choose a sick economy with cheap money or a healthy economy at neutral interest rates, I'll take the latter every day — and twice on Sundays. A healthy economy means a better functioning capitalist system — more confident consumers, more confident businesses and higher economic activity.
Two steps forward, one step back
That hasn't stopped the market bears — or the doom and gloom headlines. Maybe this time they're right… maybe this really is the start of a 'correction'. But here's the problem — we're yet to suffer a downturn that hasn't recovered to beat previous highs. And if your shares fall, say 2% today, you're probably still better off than you were 3, 6 or 12 months ago — as long as you're holding the right companies.
In that context, today's falls are barely a sideshow, unless you let the emotion of fear take hold. The All Ordinaries has gained 11.7% per annum over the last 30 years. That's higher than previous decades, where the average gain was between 9% and 11% (depending on which data you use), but even those lower numbers are impressive. And they came not in the absence of the occasional market swoon, but despite it.
Sure, some people like to think — and tell you — that they can reliably pick short-term market trends. Hey, maybe the can. But for the rest of us mere mortals, the simple question is whether the companies whose shares we own are really any less impressive because the stock market fell a little.
Will fewer people shop at Woolies this afternoon? Is Cochlear planning to make fewer hearing implants because of the falls? Do you think banks are planning to lower fees any time soon? Is BHP hurriedly cutting production on the news?
