Is all this volatility a whole lot of nothing?
Morningstar Investment Management’s Asia Pacific Chief Investment Officer Matt Wacher talks market volatility with Morningstar’s Director of Personal Finance Mark LaMonica.
Mark LaMonica: All right, Matt, thank you very much for joining us. It's been an interesting couple of days in markets. Now, I don't think we need to go through everything that's happened, but we will say that we are filming this on Tuesday afternoon. So, after some days of losses, the Aussie market has actually just turned positive, Japan is up big 9% was the last number I've seen. And obviously, with all this volatility, a lot of investors are making different decisions. So maybe we can start off and say, what have you done the last couple of days in the portfolios that you've run? Any changes, any actions you've taken?
Matt Wacher: They're very incremental, but I should start by saying, our advice to investors would be definitely to stay the course. Don't go to cash or do silly things in your portfolio. And you want to make sure that you remain invested. And that's certainly what we do. We're quite prepared for a little air pocket like we're seeing here. These kinds of market sell offs we had a bit of cash we've got quite a diversified portfolio. And so yesterday, as markets really started to sell off, probably a bit extremely, we were able to buy some Japanese equities, for example, and some high-quality names at very attractive prices. And even in the U.S., we were able to take advantage of some of the names there as well, because there's still a lot of high-quality businesses out there.
LaMonica: Yeah. And obviously, we don't know what's going to happen, but I do want to run through a couple of stats that we actually just chatted about. So, at this point, if we go back to the beginning of 2022, and we're talking about the S&P 500 here, there have been five corrections, meaning the market has dropped more than 10% from a high. And there have been 15 instances where the market's dropped more than 5% from the high. And depending upon what market we're looking at and what index, where some have corrected like the NASDAQ, some are kind of in between there. So, I guess the question is, is this a big deal if it's happened so frequently in the last couple of years?
Wacher: Look, we don't think it's that big a deal. In fact, we use this as an opportunity to invest. We think that a 5%, 10% sell-off in markets is an opportunity to rebalance our portfolios, but not necessarily go significantly overweight growth assets or anything along those lines. We focus on valuation. You really need to see a much bigger sell-off to be thinking, okay, let's really pile into growth assets at any particular time. And that's because, as you say, these things happen all the time. They're an opportunity to rebalance, not an opportunity to be feared.
LaMonica: And one thing I think that's interesting is, obviously, I can't go back and talk about what happened all 15 times that we saw these sell-offs. But a lot of them were around changing consensus views of economic conditions, of interest rates. And strangely enough, a lot of them have been the situation where bad economic news was actually taken very well by the market. Good economic news led to sell-offs and it's kind of been this fixation on interest rates. But this was a little bit different because one of the drivers was this jobs report that came in below expectations. And the fear is now the U.S. will go into a recession, which would probably mean interest rate cuts, which the market used to be very excited about. So why do you think the shift in mindset?
Wacher: I've always found it a bit strange that interest rates or that bad news is good news kind of approach. The bad news is eventually going to catch up with you, right? And I think that's what we saw the other day, not that employment numbers in the U.S. actually grew. It's not the end of the world scenario there. I mean, there's not huge job losses. That may come, you never know. We're not in the business of predicting recessions. But what you had seen is these really interest rate sensitive stocks doing very well. And now that actually growth may be the issue, you see consumers may not want to go out there and buy things. Google may not be able to sell as many ads and therefore may not need as many semiconductors to buy from NVIDIA. That's an oversimplification of the situation. But these are all the kind of interconnectivities there. And I think that it's really important to understand that just because the market's focused on interest rates, as you say, things can change very rapidly, and the market becomes fixated on something else. But if you think about what markets do over the long term, they continue for the most part to go up. And if you have a long-term perspective and you can look through this short-term noise, this change in market sentiment, then you can buy some great opportunities and compound wealth for the long term.
LaMonica: Okay. And finally, let's turn to Australia because a lot of the triggers that at least have been reported and talked about for this were technology earnings in the U.S. Obviously, this U.S. jobs report that we talked about, how does this impact Australia? The Australian markets also sold off about reverse today. So, what are your thoughts on that?
Wacher: Well, I think that the Australian market, it's kind of following the U.S. It's playing a bit, follow the leader. In fact, you've seen that across the board. And Japan aside, I mean, they've got their own issues with kind of the carry trade unwinding and these sorts of technical kind of supply and demand kind of things. But the U.S., most markets have followed that lower. Most markets today will follow that higher as well. And I think that that's what we've experienced the last couple of days. I think in terms of Australia, you know, we're in a bit of a different cycle in terms of interest rates. We aren't quite sure what the RBA is going to do, even if they do nothing today. We're not quite sure of the path. It's a little bit more unclear. But I think that, Australian economy is very interconnected with the world. And we've seen if growth does slow in the U.S., we've already seen slower growth in China. Then that's going to have an effect on the Australian economy and eventually the share market as well. But I don't think it's panic stations for the Australian economy. I think that we've muddled through there. And I think that if markets do sell off globally, then it's going to present another opportunity to invest more.
LaMonica: All right. Well, great. Well, thank you very much for sitting down and talking about this. I was watching the Olympics this morning, anytime you see markets, that was the first thing on the news after Olympic coverage. So anytime you see that, I know it makes people nervous. But hopefully talking through what's happening, what investors should do can help people make better decisions.
Wacher: Thanks for having me, Mark.
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