September has seen a return to falling markets – both shares and bonds. The recovery in July and the start of August was short-lived. Normally bonds are expected to rise when shares fall, however they have fallen together – very seldom has this happened: for a period in the 80’s, in 1994, for a brief period during the GFC (2008-09) and now in 2022.
So over the last 12 months, the ASX200 is down 8%, the Small Company Index is down 23%, the Listed Property Index is down 21% and the Australian Government Bond Index is down 14%. US shares have fallen 25% since January. So, after very strong growth over the last 2 years, most of these gains have been lost. Cash is the only asset class that has risen.
These falls have been contributed to by rising interest rates, rising inflation, the Covid outbreak in January, the war in Ukraine and fears of recession. Markets tend to look ahead and anticipate future conditions. Dr Shane Oliver, (chief economist at AMP, whose article follows), believes that shares are oversold and could begin to recover. However, no one can be sure what markets will do. At least there are signs that US inflation is stabilising and this will likely lead to Central Banks not having to raise US interest rates too much further. In Australia however, the RBA didn’t start raising rates till May and has more work to do to get inflation under control.
Falling markets can be very concerning. However, Shane Oliver warns that switching from growth assets (like shares) to cash now, would lock in losses. Trying to time the market and picking when the share market will bottom, is not possible. Trying to get back into the share market near the bottom risks missing most of the rebound, when the market starts rising again. Now is not the time to reduce risk. The only time to reduce risk is when the market has been rising strongly.
The markets will recover.
Wishing you health and happiness.
Tom and Kerrie
at Financial Springs