Stock Market Collapse Will be Short Lived
By Dale Gillham | Published 09 March 2020
In this week’s report, Dale discusses why a lack of understanding about the stock market causes investors to panic, particularly in circumstances like we have experienced today (9 March 2020) where the market appears to have collapsed.
Financial literacy in Australia needs more attention
There has been a lot of debate about the lack of financial literacy in Australia for quite some time and how more should be done in schools to educate the next generation. Sadly, financial literacy continues to be a big issue in this country that impacts everyone. Currently, there is a lot of volatility in the stock market that is causing many investors to panic and make emotional rather than logical decisions about their investments.
It is all too easy to default to investing your money in a managed fund, hoping you get a good return, although that doesn’t stop the average Australian from being worried, stressed or making poor decisions during volatile times like we are experiencing now. When speaking to individuals about their investments, it becomes apparent that most do not fully understand what they have invested in and it is this lack of understanding why so many struggle to retire with sufficient funds in retirement.
Knowledge overcomes fear, which is why I believe investors need to change their attitude from being ignorant to one of being informed and educated. The earlier you start to accumulate knowledge and understand your investments, the better off you will be.
While the Government encourages investors to be informed, particularly with the Money Smart website, more needs to be done. It is for this reason why we need to ensure the younger generation is informed and educated, as it is this generation who are under more financial pressure than past generations, as they struggle to buy their first home.
As globalization grows and the world gets smaller, it will pay for us, as a nation, to have this younger generation more money smart, so that they will have the skills to not only protect our wealth but grow it in an increasingly competitive environment.
What were the best and worst performing sectors?
Once again, the market was down last week with all of the sectors falling. Utilities was the best performing sector down just under 1 per cent, while Communication Services was down around 2 per cent followed by Healthcare, down just over 3 per cent. Hardest hit last week was Financials, which was down over 10 per cent followed by Information Technology down just under 10 per cent and Energy down just over 8 per cent.
Looking at the ASX top 100 stocks, the best performers included A2 Milk, which was up almost 10 per cent for the week with TPG up over 6 per cent followed by IAG up over 3 per cent. The worst performers included Link Administration, which was again hit hard and was down around 24 per cent, while Flight Centre was down over 21 per cent and Pendal Group was down over 18 per cent so far this week.
What's next for the Australian share market?
As I mentioned previously, it is normal for the market to fall 8 to 12 per cent when moving into a low and since the close on the All ordinaries Index on 21 February to the low this week, the market has fallen just under 13 per cent. Given this we are in the target zone and the timeframe for the low to occur.
While this is good, we need to be prepared in case the market falls further. If does occur, then my bottom target for the fall is around 6,200 points. The good news is that we may have already seen the low and the market will rise from here, however, it is still too early to tell. Once again, now is not the time to panic but rather sit on your hands and wait for the dust to settle.
Note: This report is written every Friday and distributed to various media channels. While the stock market has suffered heavy losses today (9 March 2020), and fallen below my target of 6,200 points, the reaction on the market is very abnormal. Given this, I believe the current pull back is short lived and the market will rebound very soon.
Let’s get into this week’s stocks of interest. Watch the video to find out more.
For now good luck and good trading.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in book stores and online.