Trump famously said stock market reaction is the litmus test of his policies. And there may be some truth in that – global markets are largely in “correction mode” (down 10% from their recent highs) with some such as Japan and the Nasdaq in “bear market” territory (down 20% or more).
The “Magnificent Seven” bel-weather technology stocks have on average lost a 3rd of their market capitalisation. But everything is down – including oil, (-28%) which is often a substitute for expected economic growth.
The markets are teling us we are heading for uncertain, potentialy hard times.
And what typicaly happens when an economy goes into recession? The Reserve Bank steps in to lower interest rates and to increase the money supply (quantitative easing). And that’s the current most likely scenario. We wi l enter a time of stagflation with sticky unemployment and elevated inflation. Wages wi l stagnate, prices wi l rise, and interest rates wi l fa l
And a glimmer of this can be seen this weekend. Our stock market took a hammering on Friday and wi l likely decline further today. But the weekend property market was buoyant with good clearance rates and generaly continued price appreciation. A further interest rate cut in May is more likely than ever, and this improved affordability wi l surely favour prices.
In these uncertain times, choosing between shares, cash or property, I know which asset class I would favour. And as always, expertise in finding the right property and negotiating a fair price makes al the difference to investment success.
