Investors and advisors who were shocked by the downdraft in global equities over the last five days might want to look in the mirror.
Could they have been lulled into complacency after nine and a half years into a bull market? At the very least, it would seem many have been oblivious to the changing market realities of 2018.
That’s the view of Gluskin Sheff’s chief strategist David Rosenberg who notes that the flight to safety, or 10-year Treasurys, had been “very mild.” The former chief North American economist at Merrill Lynch urges clients not to “behave like President Trump and lose your cool.”
In this 9-plus year bull market, yesterday was the 20th time we saw a 3 percent plunge in the S&P 500. “The market still managed to surge 312 percent since March 2009,” Rosenberg writes.
From late January to early April of this year, the S&P 500 fell about 10 percent driven by—what else—rising bond yields and inflation pressures. Rosenberg notes that the world didn’t end but some investors became “more selective and discerning.”
Corrective phases, he adds, can last a few months and “require hefty doses of capitulation.” Right now, the bond market is transitioning from an unprecedented quantitative easing policy to quantitative tightening and dislocations are natural.
The stock market is playing catch-up with the Treasury market as it reappraises Fed policy and shifting sands in the economy. That’s what it should be doing. It doesn’t mean Rosenberg, who advised clients to move 25 percent of their assets to cash early this year, is turning bullish—just that many market participants have unrealistic expectations.
Yesterday, tech stocks experienced their worst day since August 2011. Had the nervous Nellies not read that some of the leading FANG companies are encountering a host of problems ranging from privacy issues to the law of large numbers when it somes to sustaining top-line growth?
Even in technology, leadership has been narrowing. Among the mega-cap companies, it has been only Apple and Amazon that have carried the sector to new heights.
Had they looked beyond the tech-driven U.S. market averages, they might have seen the technical picture has been eroding for some time, in Rosenberg’s view. For much of 2018, there has already been a rolling bear market, as more than 65 percent of all stocks in the S&P have experienced at least a 10 percent correction. Others are enjoying their own individual bear markets.