Global markets were higher on Friday, as the US Market (S&P500 index +0.2%) edged higher in a volatile session, but still ended the week down -5.8%.
The session saw energy shares lead losses as the price of oil slumped by -6%, on fears of economic slowdown. Telecommunications, Consumer Discretionary, and Tech were the best performing sectors reporting modest gains as investors were willing to snap up beaten down shares.
European markets (Stoxx 600 index +0.1%) edged higher on Friday, as tech shares rose following a tough week for markets.
Bear Market Analysis
Bear markets are defined as a sustained period of downward trending stock prices, triggered by a 20% decline from near-term highs.
Bear markets are normal parts of the cycle for the S&P500 has had 25 bear markets with most coinciding with a recession. The average decline of a bear market has been 35% (ranging from -20.5% to -86%, with only 5 of them declining more than 45%). The length from the peak down to the trough is 12-months in average (ranging from 1-month to ~3 years).
The worst in recent history was the 2007 GFC, which saw the US market decline 57% over 17 months. Prior to that the Dot Com Bubble in 2002 took 31 months to reach a trough from market peak.
Taking this into account, we believe the current downturn will not be as significant as the above two mentioned events, but also not as short and sharp as the most recent Covid induced 2020 event.
Over the near-term, we still believe there will be more volatility in the market creating buying opportunities for quality stocks. While it is impossible to catch the bottom we believe in averaging in positions on quality stocks (particularly ones that can handle some softness in the economy) on the way down while having capital available for key events such as second and third-quarter company earnings and forward guidance, and economic data releases – which could disappoint or surprise on the upside.
Note that market jitters from the S&P500 will flow onto local markets to some degree with most countries dealing with high inflation, rising interest rates and economic slowdown in a similar fashion.
Australia & New Zealand Market Movers
The Australian market edged lower on Friday (ASX200 index -0.1%) marking its fifth daily loss in a row, as strong local jobs data intensifies the urgency for the RBA to lift rates even faster.
Australia’s unemployment remained low at 3.9%. Markets were mixed, with most sectors trading lower, while the heavily sold-off real estate sector led gains.
The New Zealand market (NZX 50 Index +0.1%) edged higher yesterday as global markets took a breather from their recent selloff.
Locally, economically sensitive stocks continued to slide lower following NZ’s first quarter GDP coming in softer than expected. Despite no lockdowns in the quarter a large portion of the country isolated at home when cases peaked which would not have helped.
3 Things Markets will be Watching this Week
- Geopolitical risks remain elevated given the Russia/Ukraine conflict.
- Inflation (CPI) data out of the UK and Canada, and PMI manufacturing data from numerous regions.
- Locally, the RBA release minutes from their latest meeting, and Fletcher Building will be holding their investor day.