When Will the Stock Market Stop Falling?

Dale Gillham, Chief Analyst and Head Trainer of Wealth Within

By Dale Gillham |

Anyone who has ever invested in the stock market will have heard the myths around dollar cost averaging and that it is time in the market, not timing the market that counts. Every May we also hear the mantra that you should sell in May and go away. Given that the Australian market has been falling this month, investors may be thinking that they should heed this advice but it is really still relevant today.

Is the mantra sell in May and go away still relevant?

To answer that, let’s look at the last 22 years since May 2000. During that time, the market closed higher than it opened in May 68 per cent of time while it closed lower than it opened 32 per cent of the time. As such, this suggests that May is not such a bad month but if we take a closer look, when the market closes lower, May averages a 5 per cent loss for the month and when it rises, it averages 2 per cent.

Of the seven times that the All Ordinaries Index closed lower than it opened in May, four of those occurred over consecutive years from 2010 to 2013 following the GFC when the Australian market was quite volatile and mainly moving sideways. While the research indicates that May is a more bullish month, it is not overly bullish. The research also suggests that following a negative result in May, the market is often bullish for several months, which is positive given that May 2022 is likely to end in negative territory.

So, if history is anything to go by, maybe the mantra needs to change to say that May is the month to be preparing for opportunities in the market.

What were the best and worst performing sectors last week?

Nearly all sectors were down again last week with the best performing sector being Healthcare up 2.59 per cent followed by Communication Services down 0.77 per cent while Consumer Discretionary was down 0.95 per cent. The worst performing sectors included Information Technology down 6.66 per cent followed by Materials down 3.89 per cent and Industrials down 2.22 per cent.

The best performers in the S&P/ASX top 100 stocks included Suncorp up 4.77 per cent followed by CSL up 4.49 per cent and Orica up 2.95 per cent. The worst performing stocks included Block down 19.61 per cent followed by IGO down 12.75 per cent and Altium down 11.88 per cent.

What's next for the Australian stock market?

The market has continued to be volatile and last week was no exception. While the All Ordinaries Index was more bearish again last week, ending the week down 2.14 per cent, it did show signs that this may be ending. I say this because while a number of stocks in the top 20 are falling, they are only down 3.79 per cent for the month so far with the bigger falls coming from the bottom end of the market. Given this, what I believe we are now seeing is a wash out of new investors in these cheap stocks.

This month both the Small Ordinaries and Emerging Companies Indices are down over 8 and 12 per cent respectively, as investors are fearful of a crash. That said, we need to remember that following the COVID crash, we had the biggest influx of new investors in our market, especially young investors using apps that gamify the stock market and the current bearishness is their first taste of any real market volatility.

Right now, PE ratios are not indicating that the current fall can be sustained or that we will experience a crash. Regular readers will remember a few months ago that I indicated if our market fell, it could fall up to 15 per cent and in January it fell almost 12 per cent while the recent fall is around 10 per cent.

So how much further will the market fall? While anything is possible, as I have previously mentioned, I believe most, if not all, of the fall has already occurred. While it is still possible for the All Ordinaries Index to fall below 7,000 point and possibly to around 6,800 points, I believe the sentiment is turning right now, which means the Australian stock market is likely to be bullish in the coming weeks. Until this is confirmed, it is wise to sit back and wait before jumping into the market.

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 bestselling and award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.

#1 Leader in Stock Market Education

Invest in yourself. Study with Wealth Within now to fast track your stock market education and begin the journey toward financial freedom. Because lifestyle matters!

Learning Centre

Learning Centre

Talking Wealth Podcasts

Market Report Videos

Stock Market Show