By Thomas Grüner
With a market decline of ten percent, the global stock markets have reached the official correction level. This development is doubly painful for many investors, as it happens before the old highs from January 2022 can be reached again. There are enough scary headlines. War in Israel and a rapid rise in 10-year Treasury yields in the US are just two of investors’ concerns. But the nature of corrections does not change. They are mood-driven and usually disappear as quickly as they came. However, the fundamental factors have not changed. Therefore our advice is: stay calm.
False leads
Strong market movements can be stressful. And yet they are part of recovery movements after declines. During the bull market between 2009 and 2020, there were nine declines of more than eight percent in the market-wide S&P 500. All of them were associated with terrible news. The bankruptcy of Greece, the general debt crisis in the Eurozone, the dispute over the US debt ceiling, the trade dispute, Brexit or concerns about Chinese growth could not prevent the market from rising. Likewise, today’s worries are endowed with similar characteristics.
Interest rates do not bring down stock markets
Many investors are particularly concerned about long-term interest rates in the USA. As 10-year Treasury yields rise to more than five percent in the US – for the first time since 2007 – memories of debt and financial crises are being raised. Even if there is no connection to the situation from 2007 to 2009 and the interest rates at that time did not trigger the crisis, comparisons are quickly made in the media. Other observers claim that interest rates of five percent are a problem for stock markets. But on the one hand, five percent is low by historical standards, and on the other hand, there is no connection between the returns on the stock markets and high or low interest rates.
Irony of market decline
Similar statements can be made regarding the war in Israel with Hamas. While the tragic developments have little economic significance globally, the uncertainty of Israel’s response and the potential consequences are causing unrest. But these are limited. And stocks ultimately evaluate the impact of events on expected earnings over the next 3 to 30 months.
The irony of the current market move is that it comes just as data is proving the resilience of the global economy. Last week, the gross domestic product of the USA surprised particularly positively. The Purchasing Managers’ Indices for October show expansion for the USA. Global inflation is slowing. Despite problems in the real estate market, China recorded surprisingly high growth of 4.9 percent. The surprises are positive, global and widespread.
Conclusion: The current decline signals an early correction in the young bull market: difficult to sustain, emotion-driven and short-term. Fundamentally, the world will be positively surprised by a return to economic normality. Such periods do not represent a long-term decline and attempting to time them, particularly during this period, would jeopardize long-term market-driven returns. Therefore, celebrate the return to fundamental normality and focus on the larger trends. These are positive.
I would be happy to answer any questions about the article by email feedback@gruener-fisher.de.
Thomas Grüner is founder and vice chairman of the asset management company Grüner Fisher Investments. Further information at www.gruener-fisher.de.
The above text reflects the opinion of the respective authors. Instock assumes no responsibility for its accuracy and excludes any legal or other claims.
2023-11-05 14:21:36
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