Don’t Panic… Don't Panic...
For those over forty, many will remember the British Sitcom “Dad’s Army”, which ran between 1968 and 1977 (and many more reruns). My first memory of the show was in black and white, in the early 1970’s (when there was just one TV channel 😊). It was quintessential British humour. Apparently, an episode is kept on standby at the BBC, to use as an emergency back-up if a major technical problem prevented normal programming. This happened in 1984, when a power outage interrupted the Six O’Clock News.
You may be wondering - how is this relevant to investment markets?
Daily, we read reports of the market’s highs and lows. From time to time, the news is alarming. The numbers represent the actions of people buying or selling. Those figures tell a story of greed and fear. Prices shift because the immediate news drives emotion.
Always on the other end of a sale, is an opportunistic buyer – hence the ‘greed vs fear’ narrative. Today’s extremes reminded me of a character from Dad’s Army, Lance Corporal Jones, who would on occasion become unnerved, then run around telling everyone else: “Don’t Panic, don’t panic”!
…I’d imagine Lance Corporal Jones would have made a fortune in the stock market - and then promptly lost that fortune. So, looking through that lens, what would you make of today’s headline:
US stock markets rebounded strongly overnight, with the Dow Jones up around 1.8%, and the Nasdaq nearly 3% higher. Investor sentiment was buoyed by a further unwinding in energy prices with US crude ‘cooling’ to US$96 a barrel. Airline and travel stocks soared. Crude prices have now fallen over 25% from the recent peak. The initial surge was fear-driven and belied the reality that a demand/supply reaction would ensue. Major oil producing nations noted early there was “no shortage of oil” and this is now being digested by markets. With oil such a key input to a host of industries and having material flow on effects to consumer spending pressures, the correction in prices should alleviate fears of runaway inflationary or economic growth impacts. That said, the pre-war, pandemic inflation pressures have not gone away.
These reports always sound expert. Remember however - they’re always in hindsight. What we see in markets today is heightened volatility because of the uncertainty but in truth, normal programming has not been interrupted. The shift from 2021 to 2022 is simply a market cycle. With supply chains challenged due to Covid shutdowns, interest rates are rising to hold down inflation. The misstep was that money supply should have contracted last year, but the world’s central bankers allowed the spending party to go on a little longer than it needed. But that’s normal too – to over-shoot in preference to falling-short.
Investing is about finding and holding quality businesses that will grow their earnings and protect capital from the ravages of inflation in the medium to long-term. Anything can and possibly will happen in the short-term and unless we want to confine ourselves to assets that won’t perform in the medium or long-term, we simply must ride out the volatility. Certainly, lower prices are an averaging in option, but no-one should worry if we simply stick to the original plan and don’t panic.
Russia invading Ukraine is something else, and for all the horror and insanity of war, there is a reasonable chance it doesn’t have a meaningful global economic impact beyond 2022. Certainly, it escalates regional border “tensions”, and it will add a transitory impact to the inflation story.
Let us hope for peace soon.
The views and opinions expressed in this article are intended to be of a general nature and do not constitute personalised advice for an individual client.