I just wanted to send a quick note regarding the past week of market volatility and subsequent selloff.  There have certainly been some stocks and sectors that were trading at historically high valuations, and so any “catalyst” had the potential to trigger a selloff at any time.

At this point, it looks like the rising interest rates in Japan and a strengthening yen, as well as some softer economic data in the US are potential catalysts for further weakness.  In Australia the RBA has left rates on hold but the RBA Governor is concerned about inflation. 

The volatility Index or the VIX as many commentators refer to, is at record highs for the past 18 months, as shown by the chart below.   The VIX measures the ‘expect’ volatility on the S & P 500 (Top 500 in the US).  Now we are nowhere near the COVID regions of 2020 where the VIX hit 65, but it is up near the 2022 selloff where we saw markets retrace more than 10%.  In Australia, the ASX has fallen approximately 6% from our highs so expect that there may be further falls to come if it follows the falls of 2022.

Quality will be the way forward and we are heading into reporting season, so barring some form of policy announcement from Central banks or politicians, I think being patient over the next week or weeks is paramount.

Key things for investors to bear in mind

Sharp share market falls are stressful for investors as no one likes to see their investments fall in value. And try as one may, it’s never easy to accurately predict economies and shares. So, at times like these, it’s important to focus on basic investment principles. In particular, these things are worth keeping in mind: 

• share market pullbacks are healthy and normal – their volatility is the price we pay for the higher returns they provide over the long term; 
• it’s very hard to time market moves so the key is to stick to an appropriate long-term investment strategy; 
• selling shares after a fall locks in a loss; 
• share pullbacks provide opportunities for investors to buy them more cheaply; 
• shares invariably bottom with maximum bearishness; 
• to avoid getting thrown off a long-term strategy – it’s best to turn down the noise around all the negative news flow.