Monday thoughts: It’s October, is a share market correction coming?

OPINION: Many investors feel share markets globally are long overdue a pull back. Many also feel that the global financial system’s issues, laid bare by the last crisis, have not since been solved.

Corrections are part of the normal ebb and flow of markets. Larger crashes like in 1987 or 2008 are relatively infrequent, though through a multi-decade lens they are inevitable.

The United States share market is currently down 5 per cent since the start of September and the New Zealand market is off 2.5 per cent. Market volatility has also risen.

Before September’s weakness, the US market was set to deliver its seventh consecutive monthly rise. Incredible.

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Despite a global pandemic, the US market has doubled from its low point in March 2020 – one of the strongest 12-month gains in the last 75 years. That’s also incredible.

It’s not uncommon for September and October to be volatile months. They’ve also witnessed large falls – those in 1929, 1987 and 2008 all started in October. That fact is not, however, evidence that we’re headed for a ‘flash crash’ any time soon.

But you don’t have to look hard for bad news. Economic growth is slowing. Global supply chains are disrupted. Inflation fears are rising – not helped by higher freight charges, energy costs and wage pressures. Central banks have fewer effective tools to respond to the next crisis.

There are big risks in major economies. In the US, President Biden is struggling to get his spending plans approved. Any time a pullback happens, there’s nervousness that trend-following and algorithm-driven US traders will accelerate the fall.

In China, regulatory challenges to some business leaders have created investor uncertainty. The financial woes of Evergrande, the large Chinese property developer, are concerning.

It’s unlikely that Evergrande will be left to collapse uncontrollably, that would bring chaos to China’s economy. But how Evergrande is handled in China is about the health of its banks, financial market stability, ongoing economic growth and investor confidence for locals and those offshore.

Asset prices from property to fine art have risen, as have company valuations.

Tesla is now more valuable than the next six car companies combined. AirBNB is worth more than the bricks and mortar operations of the Marriott and Hilton combined.

Just four tech companies – Facebook, Amazon, Netflix and Google (known as the ‘FANG’ stocks) are more valuable than the entire Japanese share market.

Despite negativity and…