By SA For FAs :
"It's bulls killing bulls" as they stampede out of markets. That's how one Chinese hedge fund manager described today's trading in China, where the main Shanghai index ended down 4%, after recovering from losses exceeding 6% earlier in the day. Wall Street's woes have gone global, and it bears watching the world's second largest economy for clues as to what's happening across markets.
'If 10-year, risk-free rates keep climbing toward 5 percent, stocks with earnings multiples of 30 or more will become increasingly expensive, so they're getting dumped by institutional investors," added Gu Weiyong in a Reuters report .
Note that Gu said "increasingly expensive." Chinese blue chips, like our own, were already expensive by most conventional measures.
Another insight from the Reuters article:
In the past, China's government has sometimes moved to prop up falling stock markets, but a hedge fund manager said that was unlikely this time… [But] Gu said he saw no evidence the government was stepping in to stem the slide this week, the CSI300's worst since August 2015."
America's government, through the Federal Reserve but also via the Treasury Department, has also acted to prop up falling stock markets, but that too seems unlikely this time. The Fed's announced course is to raise rates gradually. It has ample justification to do so, with economic growth breaking out and a sharp rise in wages in the last employment report. Retreat doesn't seem in the offing, though soothing words about moderating the pace of rate increases do not seem implausible if the Fed seeks to appease investors.
In any event, I think the biggest lesson in the recent swoon is the reminder that sometimes, it pays to be an owner of shares, and at other times, it pays not to be one. I like to hedge my bets and own and non-own simultaneously.
Many years ago, when my daughter was 11 years old, she bravely attended her first sleepaway camp for girls. The camp posted a zillion photographs so anxious parents could see that their kids were doing okay. I recall searching through these photos for such evidence, and mostly coming up empty, which was no surprise, since our daughter was the type to avoid attention. Finally, we found her in a series of images recording a festive event where the girls got to share an enormous cake. What we saw was a crowd of sugar-bestirred pre-teens swarm the table with cakes on their plates, hands and faces, and our daughter at a remove, contemplating the scene. For a millisecond, we pitied our cakeless child, but the feeling gave way to pride in her patience, safety, and dignity. Surely, she would find a way to obtain some cake without getting bruised, and indeed, we later confirmed she had done so.
The same goes for investors. The all-in greedy ones get their cake, along with a belly ache, followed by periods of starvation. Restrained investors can have their cake and eat it too. It's really just a choice.
Please share your thoughts on this issue in our comments section. Meanwhile, below please find links to other advisor-related content on today's Seeking Alpha.
- Jeff Miller's Stock Exchange panel discusses limiting risk in a volatile market.
- Russell Investments: Why a dynamic multi-asset approach matters in volatile markets .
- Global X ETFs: A plain vanilla correction never feels plain vanilla while it is happening.
- For more content geared to FAs, visit the Financial Advisor Center .
See also Performance Of Dow Stocks In Swoon on seekingalpha.com