Rocky Road Ahead

In the decade since the global financial crisis, investors have enjoyed a steady upward ride and very few shocks. Prepare now for the nervous return of the “old normal” – market volatility

- Pattrick Smellie

October was not a great month for sharemarket investors. In Europe, the United States, Asia, Australia and New Zealand, shares tumbled, rose and then tumbled again practically in unison.

October 11 was the fifthworst one-day fall ever seen on the New Zealand sharemarket.

As often happens after a big fall, traders drew breath at that point and most global benchmark indices rose a bit.

But it was a so-called “dead-cat bounce”.

Sharemarkets fell again and, by the end of the month, had lost close to 10% of their value in just 30 days.

The US Dow Jones Industrial Average fell 8.9% from its October 3 high to its October 29 low; the S&P500 global benchmark fell 9.7% between October 1 and its low for the year on October 29; Australia’s ASX200 dropped 8.2% between October 1 and its October 25 low; and the NZX50 index followed in sympathy, shedding 8.1% between October 1 and 31.

Those movements were just short of a formal “correction”, the term used when a market or an individual share falls 10% or more.

Two markets that did suffer corrections were Japan, where the Nikkei index fell 12.8%, and the Nasdaq – an American index where technology stocks both old and new trade – was down 12.2% for the month. However, note the terminology: correction, not crash.

Despite global sharemarkets having their worst month in six years, four of the six mentioned indices were higher at the end of October than they’d been a year earlier, with only Japan and Australia trailing.

It would be easy to blame trade wars, gyrating oil prices, US mid-term elections, Trump chaos, Brexit chaos or any number of other troubling global news events to help explain the October sell-off.