Headlines are calling this sell off of stocks a bloodbath after our market is down 4.26% in a week. However, for the year, we’re still up 4.66%. The GFC sell-off in 2008-09 was a bloodbath, with the market down 50%. And 1987 was a bloodbath of massacre proportions, when US stocks dropped 20% in one day!

That’s the day that took me out of academia into radio and television commentary, which added to my column in The Daily Telegraph. The panic was extreme, and I was asked “How scared should we be?”

That’s the question I’m being asked today but my answer is different from 1987 and 2008, when the financial collapse was reacting to serious economic problems.

In 1987, interest rates were escalating, and 17% home loan interest rates were still to come. It’s why it ended in the deep recession of 1990, when unemployment spiked over 10% — with one in 10 workers out of work!

Then in 2008, financial institutions were dumb and lent money for stupid speculative plays and debt rating agencies either rearranged reality or were stupid too. Investment products called collateral debt obligations (CDOs) rattled the foundations of the global banking system!

After that, the US ended up in what they called The Great Recession. Today, we’re miles away from these kinds of disastrous scenarios.

I’ve been telling my financial planning clients that a sell off was overdue. These clients have had one of the best years ever for returns because they had exposure to the US stock market, which has had a ripper of a year, because of seven big company stocks.

These are Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla and have been tagged the Magnificent Seven (M7), after rising by massive amounts over the past couple of years.

(Happily, I got my clients out of these M7-oriented investment products a few weeks ago!) The table below from Investopedia.com shows their unbelievable gains, though Tesla recently pulled back for a number of reasons, including the weirdness of Elon Musk and the threat from Chinese-made electric vehicles.

If you take these stocks out of the big US market index — the S&P 500 — the gains go from around 20% to something more like 8%, so the M7 have been over-bought and right now investors are taking profit as their share prices are falling. And it coincides with other concerns that are affecting other stocks as well.

Here are the issues spooking the market now:

1. The US got a bad jobs report for July, and it made the market worry about a recession, which I think is an overblown concern.
2. There are concerns that Iran could attack Israel, which would make some investors nervous, which often leads to the selling of stocks.
3. The Japanese carry trade, when investors in Japan borrow cheap money and buy US stocks, like the surging M7 stocks, but now Japanese interest rates are rising and many of these carry traders need to get out of their investments and so they are selling their holdings. This makes me recall the old saying: “If you owe the bank a million dollars, you have a problem. But if you owe the bank a billion dollars, the bank has a problem.”
4. August and September is always bad months for US stocks.
5. The US market gets one correction a year, when the market drops 10%. The Yanks haven’t had one.
6. There is a US election looming, and this can unsettle investors.
7. Panic from headlines such as ‘bloodbath’ don’t help in a new investing world where players get in and out fast via online trading.

So, am I worried about this sell-off? A little, if something we don’t know comes from left field, such as an Iran military offensive, but generally I’m not. I’m looking to be a buyer of this sell-off, when the time is right.

The US economy is growing over 2% now and rate cuts are coming in September. By the way, 75% of US companies have reported profits recently and 79% beat expectations. The December quarter is historically good for stocks, and so are most periods of falling interest rates. Also, there’s often a post-election surge for stocks after a US poll in November, so I’m seeing this as a buying opportunity. If I really thought the US economy was dodgy right now, I’d be more concerned, but I don’t think that so I’m not.

This isn’t a bloodbath but a cold bath for those who made a lot of money on “hot” stocks that now are being repriced. Because fear is magnified in an online world, lots of other companies are being sold off. Want proof? Over the past month the tech-heavy Nasdaq is down 11.73%, while the Dow Jones index (less tech and more old-world companies) is off 1.71%.