29 September 2021
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US market wobbles. “What? Me Worried?”

Peter Switzer
10 September 2021

A couple of weeks ago I predicted that the stock market could stop being supersonically positive, with rising cases of the Delta variant worldwide, especially in America. Now it looks like that overdue negativity has hit Wall Street.

And in a world much more attune to infections since February 2020 introduced us to the unforgettable Coronavirus, let me remind you of that old market rule of thumb: “When Wall Street sneezes, the world catches a cold!”

Yesterday in Australia our stock market’s monitoring measurer i.e. the S&P/ASX 200 (which checks out the stock prices of our top 200 companies) fell 142 points or 1.9%. This is a big one-day fall. And the world’s most reported market measurer i.e. the Dow Jones Industrial Average (which has 30 of America’s biggest companies in it), has been negative for four days.

This is saying that the number of sellers, relative to buyers, is on the increase. But there’s no panic yet.

Could there be? Yep, a little, but let me assure you that if it happens, I’ll be buying stocks that in 12 months’ time will be a lot higher than they are today.

So why is the stock market vulnerable now? Try these excuses:

  1. September and October have been bad months for stocks and some of the biggest crashes have happened around these times.
  2. The Delta strain cases are growing, especially among the unvaccinated. Those who were expecting fast growth rates for economies and businesses will now be peeling back their forecasts. This means their expected share price guesses will be lower so they could sell some, or all, of their affected or ‘infected’ stocks!
  3. Future economic growth rates are being reduced and even the latest Chinese growth rates are down, as they play hardball to keep the virus under control. China does control very well — that’s its specialty!
  4. Last Friday, the US got a jobs number that was either an aberration or it was telling us that the Yanks are losing economic steam. In August, employment rose by 235,000 but this was about half-a-million short of economists’ expectations! The figure was well down on the 1.05 million jobs created in July but the unemployment rate fell to 5.2% in August from 5.4% in July, which contained the negativity. Many economists think the number will rebound in September, but then there’s the virus impact, which is hard to measure until you see it in some statistics.
  5. In contrast, some investors are worried about US wage rises and inflation that could force interest rates up, especially in the bond market, which then would put pressure on the Fed to act in 2022.
  6. Other investors are worried the US central bank will start reducing stimulus this year by buying less bonds off the public, which puts money into the economy. Overnight the European Central Bank said it was slowing down its bond purchasing.
  7. Some commentary says the US is only weeks away from a debt problem because of its huge spending program under President Joe Biden, on top of the blowout under President Trump, who cut taxes and then had to deal with the Coronavirus shutdowns. “When he gained office and the Republicans control of Congress, the debt was just under $US20 billion,” wrote the SMH’s Steve Bartholomeusz. “By the time he left in January this year it was more than $US27 trillion, with his tax cuts and pandemic-related spending the main factors in the increase.” If Congress goes into argument mode over raising the debt limit, the stock market could get spooked, like it did in 2011, when Standard & Poor's downgraded US debt from AAA to AA+!
  8. But here’s the big reason for a sell off and it’s in this chart below.

S&P 500

The US stock market has been surging this year and is up about 34% since its peak before the Coronavirus crash! Our market is up only 5%. So the US market is overdue for a pullback.

When it comes to the Congress/debt debate, the Yanks will do what Winston Churchill once said of them: “You can always count on Americans to do the right thing - after they've tried everything else.”

If you believe that vaccinations will eventually sort out the health and then economic challenges out there, then any stocks sell-off will be a buying opportunity, after a period of fear and loathing.

That’s the stock market and its legendary “climbing the wall of worry” preoccupation, but it does provide some wonderful buying opportunities.

My podcast this week with Morgan’s chief economist, Michael Knox, confirms my positive view on the 2022 economy and even 2023 both here and overseas. That’s why I will be a buyer, if this stock market sell off gets scary!

I’m taking the view of Alfred E. Neuman of MAD comic fame when I say: ‘What? Me Worried?” And I’m feeling quite sensible about it!

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