Thousands of years ago, before the use of horses, Native Americans utilized a hunting technique that preyed on animalistic instincts. This technique was called the buffalo jump. Hundreds of buffalo could be killed at a time without the use of weapons.
Tribesmen would set up a path lined with piles of rocks and tree stumps, creating a “road” towards the cliff. Hunters would then frighten a lead buffalo in a herd onto the path and cause a stampede.
Stampedes are not unique to buffalo and happen with humans as well, even today. Psychological stampedes are more widespread than physical stampedes, though. Stampedes (bubbles or manias) are a staple of human nature.
We have a fear of missing out. We are greedy and fearful. Like the buffalo, we feel safer in the crowd. Sometimes it takes courage simply to be a bystander.
The markets are experiencing higher volatility. A strong short-covering rally in the Yen and the unwinding of carry trades plus for the second time last week, the People’s Bank of China (PBOC) has unexpectedly cut interest rates.
According to Bloomberg, the Nasdaq suffered its worst day of 2024 with the tech-heavy index sliding more than 3% for the first time in more than 400 trading days. The plunge wiped out hundreds of billions of dollars in market cap from the Magnificent Seven as concerns abound for Big Tech earnings that have propelled the broader market to record highs.
Could this be the start of something? After the bloodbath, it is tempting to succumb to the prevailing bearish narrative, suggesting we are on the brink of a recession and bear market caused by the bursting of the artificial intelligence bubble.
Here is a dose of optimism from me. We are in the middle of nothing more than a summer pullback in the major market averages before the bull market resumes. The current correction on Wall Street is long overdue and an important thing that this pullback revealed is that the stock market is broadening out. This means more strength in the entirety of the market, not just in a few overbought large technology trades led by Nvidia.
If you are easily worried by a dip, a technical correction or even by a bear market, then risk assets like stocks are not for you.