Sharemarket gains $50bn – Everyone’s a Winner!

Sharemarket gains $50bn – Everyone’s a Winner!  Well that’s not entirely true, but clearly after a tough start to the year, the headline makers are in overdrive.

It’s often hard to find headlines screaming “Sharemarket gains $50bn – Everyone’s a Winner!” when markets rally, and that’s because bad news sells better that good news. Create a commotion, get the punters reading, and we’ll sell newspapers/get more clicks on the website.

Sharemarket corrections are always front page news.

Sure, a sharemarket fall of 7% since the start of the year isn’t anyone’s idea of a comfortable ride, but should we be hitting the sell button? Well, not quite yet.

As the sage Warren Buffett once noted, “be greedy when others are fearful, and fearful when others are greedy”. Now is likely to be the time when others are starting to get fearful, selling their holdings so they don’t see their portfolio diminish any further. There’s a few hot topics in the markets that are contributing to the current malaise:

  1. Falling oil prices: This is obviously not great news for oil companies and the profits they can generate, but is actually good news for everyone else in the world who uses a vehicle/machine that relies on petrol, including companies who need to transport their goods over distances in order to sell them. This can then translate to cheaper prices for those goods as it costs less to get them to market.
  2. US manufacturing is on the slide: Weak demand for manufactured goods, a rising US dollar (hurting exports) and high inventory levels have combined to produce a scenario where US manufacturing is slowing. However, this sector accounts for less than 10% of the US economy, and once the current inventory gets moved the manufacturing sector and sharemarket should start to pick up again.
  3. How will central banks respond to the current conditions: Central banks (such as the RBA here, the Fed in the US or the ECB in Europe) like to step in to control the direction of the economy, putting a lid on things when the economy is running hot (such as raising rates in order to reduce spending) or helping things improve when the economy is struggling (such as printing more money in order to have more cash available for spending, or reducing rates to put more money in the pockets of individuals for spending). There’s the potential likelihood that these banks look to ease monetary policy in the coming weeks in the wake of the market struggles in the early part of the year, which may provide some positive sentiment for the markets to respond in kind.

To conclude, this isn’t likely to be the second coming of the GFC, as the economy isn’t in the doldrums like it was in 2008, when people were losing their jobs and house prices were struggling to make headway north.

Our role as your financial planner is to help you keep your head when others about you may be losing theirs, and to provide some clarity to see the bigger picture.

Your longer term goals (financial or otherwise) shouldn’t be shaped by some minor turbulence in the sharemarket along the way and it’s important to keep that in mind.

If you have any questions please don’t hesitate to ask, that’s why we’re here.

It’s my job to work as my client’s financial ‘lifesaver’ to ensure that they swim between the flags and that they don’t get in over their heads.