Investment Strategy: Market Reset

By Tony Brennan, Chief Investment Strategist

In just a couple of trading sessions, equity market indices around the world have fallen over 5%, including the US S&P500 and the ASX200; and some have fallen more, where valuations were more elevated and/or risks appeared to have increased more, like the Nasdaq in the US, and the Nikkei in Japan, where the central bank has just raised interest rates. The falls also extend earlier declines from peaks around mid-last month in some markets.

The correction follows the more or less continuous market gains over the prior 12 months and so far could be characterised as a reset of valuations, to reflect more uncertainty and risk in the economic and earnings outlook, particularly in the US. And as a reset, it could go further, with valuations still looking on the high side, and also if recent concerns about the outlook prove justified. But, perhaps more likely, with prospects not seeming to have changed that greatly in recent days, further equity market weakness may prove reasonably contained, at least in the short term.

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