The 'October Effect' strikes again, volatility spikes in global equities
In times gone by October has brought some historic and tumultuous events to the world in equities:
“ The October effect” – the infamous reputation has evolved over the decades due to the events of The Panic of 1907, Black Tuesday (1929), and Black Monday 1987 when the Dow crashed -22.6% in one day. Interestingly October is on average a positive month for stocks but panic is something that sticks in most people’s minds - over the last decade the ASX200 has actually appreciated just under +1%.
Last week the only place to hide was the gold sector with money searching for perceived “safe havens” e.g. Regis Resources (RRL) +7.2%, Northern Star (N ST) +3.6% and Newcrest Mining (NCM) +1.7%. The MSCI World stock Index fell -4.1% as volatility clearly gripped risk assets including stocks – that crazy beast Bitcoin fell -6% in less than 30-minutes on Thursday afternoon AEST and this may be the beginning of the end for a number of the peripheral crypto currencies.
1 The ASX200 fell -4.7% led by the Capital Goods, Media and Energy sectors which fell -8%, -10.3% and -7.5% respectively.
2 The US S&P500 tumbled -6% led by the Technology and Materials (resources) sectors, both of which fell close to -8%.
3 European stocks fell -4.5% while the emerging markets only fell -2.1% but they have been declining for a while.
The MSCI World Index Chart
1 Firstly, how does MM now believe stocks will trade moving forward, including is the longest bull market in history over?
2 Secondly, and more importantly, how does MM now plan to invest for here?
Last week we were bearish but as it played out, clearly not bearish enough i.e. “At MM we remain short-term bearish the ASX200 targeting a break below the psychological 6000 area” – MM 7th October.
We now believe equities are entering one of their most exciting times in years, investors should remember the bigger picture to wealth creation before panicking too quickly, this will likely become a great investment opportunity. We hate being cliché however the old Buffet quote is probably timely…“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful” - Warren Buffett.
Its easy to say buy weakness and sell strength but it goes totally against human emotion plus of course the big question, how much weakness to expect? We know from history stocks are the best long-term investment in Australia and significantly more so in the US / Europe. Hence if we put on our “glass half full” glasses the current -9.1% correction by local stocks is presenting a solid opportunity.
Long-term performance of stocks in Australia Chart
