June 2022 Update
The ASX All Ordinaries closed down 3.98% today on the back of negative leads from the US. As bad as it sounds, it actually opened close to 5% down so it did recover somewhat during the intraday trading. The catalyst for the turmoil was US inflation data, which showed US inflation reaching a higher than expected record 8.6%.
The Reserve Bank of Australia and the US Federal Reserve appear to have been slow to act in raising interest rates and we are now seeing significant upward pressure on rates. It is hoped that some elements that have led to inflation; supply chain disruptions, war in Ukraine, China’s on again / off again Covid restrictions will not be permanent.
The market declines puts the US markets in bear territory (down 20%+ from recent peaks) and the ASX back in a correction (down 10%). Short term charts do not look pretty but the 5 year ASX performance shows the sky hasn’t fallen in just yet.
2022 ASX YTD
5 year ASX Chart
There will be talk of recessions, market crashes; both financial and housing. Although every significant event on financial markets are different, we have been here before, with the last time being caused by Covid panic in March 2022.
The Federal Reserve is due to provide insights into their thinking in the next couple of days and the hope is they can reassure markets that they have a credible strategy to bring inflation under control.
The questions will always be asked whether now is a good time to buy or should investors be selling and holding cash. To the former, I believe the market will be higher five years from now but I am not sure if we are at the bottom just yet, so average costing into the market is the conservative approach. And as to whether investors should sell, I suggest you stay the course and hold. It is one thing to sell but another to time getting back into the market. The March 2020 sell off lasted 1 month and 3 days and the ASX is 50% higher today.
Many of you remember the 80’s when interest rates on mortgages hit 17%. In 2008 rates were just shy of 10%. I doubt we will get back to these levels any time soon but everyone knew interest rates wouldn’t remain near zero forever. We managed to get through these times and I am sure we will again, although there may be some further short term pain.
