Healthy downticks
Stock markets have been on a decline over the last weeks. And yesterdays weak US payroll data added to the decline. Over the last 6-12 months, markets did normally react not too negative on bad data as it would mean more rate cuts to be priced in which would boost spending and investments and lead to a stronger economy.
Over the last few days/weeks we finally see that markets react with downticks on bad economic data. Markets are starting to believe that a recession in the US is something that is not unrealistic and in the end the idea of a soft landing might turn out not to be true.
Recession?
Recession or not? It is not really a problem. Downtrends and corrections in the stock market and in the economy are parts of the life cycle that are healthy and are needed to make sure that the best companies out there survive and improve. 10-20% downticks are normal corrections and in most indices we are not even there.
Though, over the last weeks people seem to keep shouting that the markets are collapsing. Yes, if you got used to index volatilities of 10-11, these recent downticks are relatively large. But zoom out and look at the graph. The interesting part is too that even more people start shouting later on when the stock market is finding a new bottom. The old saying of Warren Buffett is then again a wise statement: “Buy when there’s blood in the streets”.
The ones who shout about collapses are probably not even invested or hack out of their beautiful long portfolios at the worst times. They don’t shout when the index is making new highs. To them: if you just look at your long portfolio or at a graph that is longer than just some daily/weekly swings, you will see that the recent downticks are just a small dip compared to the 1 year return of long the S&P. See Below.
Fear? No GAINS
If you get scared by the recent downticks, you do not deserve the upticks either. And those are longer and larger in time. Before starting to talk about collapses, just look at the value of your long portfolio and compare with 1-2 years before. It will be much higher currently. If it is much lower, start shouting!
Its like an Olympic Athlete, who can not always be in perfect shape and after a Gold Medal needs some time to rest and will perform lower for a while. But will come back! Stocks come back! Just shout when it is time to buy!
