The surprising thing about global stock markets since the banking crisis almost a decade ago, is not that they were so high for so long but their preternatural lack of volatile: strong and stable you might say.
We’ve not had a correction for such a long time that people seem to be mistaking the current turbulence for some sort of crash. But it ain’t.
We’re seeing the kind of squall that was normal a decade or two back. Globalisation and emerging markets, such as China and India, re-joining the world economy makes it more synchronised, but it is not yet a panic, and doesn’t feel like it.
Nonetheless everyone who has a pension pot or a few shares will today be poorer, and the long March of higher asset prices – everything from residential property to equities to classic cars – may be stalling as the taps of cheap money get turned down. There’s no secret about that. The question is how will central banks and especially the Fed react?
And is the “Greenspan put” still a thing? Such a put means the stock market becomes a bit of a one way bet because the Fed will always ride to the rescue if things turn ugly. That’s what happened after the crash of 1987, after the dot com bubble burst in 2000, and most emphatically – and on an unprecedented scale – by central banks across the globe during and after the banking crisis and the Great Recession from 2009 onwards.
The worry always was that central banks and governments might not have enough ammo left in the locker if a fresh crisis arises. For all the concerns about inflation, these are not crisis conditions.
There’s reason to believe the new man at the Federal Reserve, Jerome Powell, will by words and actions move to calm things. He is Donald Trump’s man and the President has invested so much political capital – if not financial— in the 84 stock market highs since he was elected.
It is all a bit odd given the technological wonders of AI and robotics promise new horizons for productivity and profit growth, and because Trumps tax reforms are boosting returns to investors so strongly.
Yes, inflation is edging up, but again it was unhealthily low for so long, especially in the eurozone where it threatens to turn into full on deflation.
The new normal of choppy stock markets and moderate inflation was the old normal not so long ago. As ever with equity markets a bit of perspective is always a good investment.