22
Jan

Correction? Not really.

Oil barrel spillThe press is currently buzzing with the latest market correction but what has occurred requires a reality check. In late December, specifically on the 16th December, the market took off with an exuberant rally that was as sharp as it was unexplainable. Christmas rallies are not uncommon, there has been a rally in 12 of the last 15 Decembers. This one was late however and with a large percentage of professional investors on holidays, there was a lot of buying that was not met by any seller resistance. The market popped a startling 8% in 10 days.

So I am not getting too surprised that the market has fallen 8% in the first weeks of 2016. We are just back to where we were before the crazy move in December.

What has changed is that the outlook for oil has continued to deteriorate. In January West Texas has fallen a massive 20% in three weeks after losing 30% over calendar 2015. Not surprisingly, 8 out of the 10 worst performers in the ASX300 were oil stocks.

So the world is not ending. Cheaper energy is actually good for growth.

However, this will be a tough year in equities particularly in anything resource based. The positives are that the Australian dollar has fallen sharply, the economy is in good shape, the era of unpopular political leaders seems to be at an end, cash is flowing from emerging markets to developed markets like ours, unemployment is falling, new businesses are springing up, rates are low and the weather is good.

There will be  lots of volatility in response to the latest economic statistic or political utterance.

Despite the negative sentiment, there is always opportunity for those that remain unemotional and cast the net in the right place.