For those hunting signs the market may have bottomed, the level of panic seen in a stunning 24 hours could be taken as a positive. But buy-the-dippers should be very careful.
, it’s this: at times the panic was so great, and the selling so indiscriminate, that investors finally appeared to be selling the stocks they love the most.but the 3.6 per cent fall put a major dent in Australia’s reputation as a safe-haven sharemarket.
Market veterans typically argue the end of a bear market requires capitulation by investors, and the dumping of the market’s most loved stocks is typically a good sign of this. But buy-the-dippers should be very careful for three good reasons.The first two relate to the bond market, where Australian and US bond yields have hit levels not seen in more than a decade.
Second, bond markets are telling us that the possibility of a soft landing – that is, the Fed or the RBA raising rates just enough to slow the economy, but not enough to crash it – are fading fast.While economic conditions remain strong, Friday’s numbers say inflation is stronger and stickier than feared, increasing the danger the Fed and the RBA tighten monetary conditions so much that they break markets and then consumers.
How much earnings might fall is difficult to forecast. One investor Chanticleer spoke with on Tuesday suggested with bemusement that he was frantically trying to work out if 5 per cent or 25 per cent was more realistic.The market will be puzzling this out over the coming days and weeks. The June-quarter earnings season, which begins in a few weeks in the US, will provide a crucial test.