What: The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) briefly entered technical correction territory on Thursday when the index slipped to 5,383 points, representing a fall of 10.2% from its recent peak in April of 5,997. Luckily the index regained its composure to swing back from its early losses to trade in positive territory in late afternoon trade.
So What: The recent sell-off on the ASX follows further falls on China's main bourse, the Shanghai Composite Index, which lost a further 3.7% at the open despite unprecedented measures by the Chinese government to steady its stock markets.
After a disappointing 2015 financial year (FY) which saw the ASX barely claw out a gain, the beginning of FY 2016 suggests investors could be faced with another lethargic return.
What now: A flat or declining market doesn't mean your portfolio has to follow suit. Savvy stock picking can lead to positive returns in any market environment.
For example, last FY, although the S&P/ASX 200 only gained 1.2%, stocks such as Qantas Airways Limited (ASX: QAN) and Domino's Pizza Enterprises Ltd (ASX: DMP) provided shareholders with outstanding returns of 150% and 66.5% respectively.
Another two stocks which did incredibly well last FY were gold producers Northern Star Resources Ltd (ASX: NST) and EVOLUTION FPO (ASX: EVN). Northern Star's share price rose 75% (adding to the huge 116% gain in FY14), while Evolution shareholders also enjoyed a 75% rally in its share price.
Whilst there were definitely stock specific reasons for the size of the gains experienced by these two golds stocks, the increasing stock market volatility could see a flight to safety amongst investors which would send the gold price and gold stocks soaring higher. If investor fear does grow keep a close eye on the Volatility Index (VIX) as it is a good measure of investor anxiety over the potential for a market crash.
