When economies like Germany and Japan have fallen into recession and yet their stock markets hit all time highs, it’s time to take real caution. When there is a single stock mania like Nvidia it is reminiscent of Cisco in 2000, it is also time to take caution though we hear people often cite this time is different. As this thread has shown the common mistaken perception market participants have is that if the company makes profit the stock can only go up. It is when growth stalls that stock prices go lower.
Markets can still move higher because of excessive speculation but these are more often signs that an overdue correction is in the works, a deja vu feeling similar to the Q4 narrow breadth run up in 2019.
All it takes is one negative catalyst to spark a selloff. The Fed in the interim won’t be too happy with the loosening of financial condition which makes its fight against inflation tougher because wealth effect increases consumption demand.
But what good is a strong rally in US when it is primarily a narrow one driven by mega tech stocks , and likewise ASX mired with subpar performance across both large and small caps because our fundamentals are different to that from those stocks in the US.
Market participants here have made concentrated buying in our bank stocks which now make them lower value proposition, ripe to be blindsided. Sure there are some selective mid caps that can deliver returns but equally they are not immune to sharp sell downs if and when they report underwhelming results or guidance.
So to thrive in this market, you have to be very good at picking the stock and know when to sell. Loss making companies are shunned, micro cap stocks resort to discounted CR, profit making companies have varied best/miss results with some receiving brutal market selloff in response while big cap names have recently seen that their poor corporate governance have finally caught up with them.
As I would often say here, it is not what those major indices in US or AsX do that matter, what is important is how your stocks respond and behave in the wake of this bullish rally. Because when the correction arrives in Wall St, our ASX will suffer one too even though our stocks have not risen in tandem with US stocks, making risk reward rather poor. So while being on the sidelines is missing out, I would think it is more likely missing out picking a winner that can sustain gains without getting potentially hit and blindsided by a storm ahead. Unless one is savvy enough to duck in and out.
