Imagine you have a big box of building blocks. Sometimes, when you build a tall tower, it gets a bit wobbly, and some blocks might fall off. When that happens, you have to fix it by taking a few blocks away and making sure the tower is steady again.
A stock market correction is like that sometimes, the market needs to adjust and fix itself to stay strong and steady. Corrections or bear markets tend to flush out the weak hands, eliminate the retail crowd, and penalize those who rely heavily on leverage.
Phew! The market panic on Wall Street did not last very long. There was a joke that if you did not panic because you did not follow the financial news last week, you would have assumed that it was one of the most boring week’s ever.
The S&P 500 slumped 3% on Monday, posting its worst trading session since September 2022 amid a global selloff. Earlier, traders in London and New York woke up to the worst crash the Nikkei since 1987. No, that is not a typo. The volatile journey eventually concluded on Friday with the benchmark index closing largely flat for the week.
Here is the scariest thing to ruin your day. There was speculation about whether the Oracle of Omaha has adopted a more bearish stance, as evidenced by Berkshire Hathaway’s recent financial moves. The company’s cash reserves have surged to a record high of USD277 billion, reflecting a remarkable USD88 billion increase in the second quarter alone.
Notably, USD75 billion of this increase resulted from stock sales with Berkshire selling nearly half of its position in Apple. So, everyone should get rid of their US stocks. Say what?!
Financial assets can go up and down for all kinds of reasons. On another note, August can be a volatile month with customarily lighter-than-average trading volumes and thus the potential to exacerbate the reaction (positive or negative) to new developments.
Peter Lynch, a well-known money manager at Fidelity, once remarked, “Investors have lost more money by trying to predict or prepare for corrections than they have actually lost during the corrections themselves.”
As I type, several of my reliable TM-IM indicators are flashing green, suggesting potential buying opportunities for our global macro and multi-asset portfolios. These portfolios have remained resilient despite significant cross-asset volatility throughout the year. Of course, past performance is not a guarantee of anything.
