The latest market shake-up is unlikely to mark a sinister turn for the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) but history is indicating that we shouldn’t expect a rebound anytime soon – particularly if you believe that we are still joined to the hip with US markets. The fact is, the sell-off on the ASX can be laid squarely at the feet of US equity markets. The S&P 500 index has been a bellwether for the major world indices and it is hard to fathom a recovery on our market without seeing a big bounce in the US benchmark. Herein lies the…
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The latest market shake-up is unlikely to mark a sinister turn for the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) but history is indicating that we shouldn’t expect a rebound anytime soon – particularly if you believe that we are still joined to the hip with US markets.
The fact is, the sell-off on the ASX can be laid squarely at the feet of US equity markets. The S&P 500 index has been a bellwether for the major world indices and it is hard to fathom a recovery on our market without seeing a big bounce in the US benchmark.
Herein lies the issue. There have been four market corrections since the end of the GFC in 2009, according to Bloomberg, and the average time to recovery and share price fall for the S&P 500 has been 200 days and 14%, respectively.
This means two things: it could take until August before the US index recovers all of its losses and it has more room to fall given that it has only so far shed around 9% of its value from its January 26 peak.
So this probably isn’t the time to be looking to pick the bottom for blue-chip stocks on the ASX like Commonwealth Bank of Australia (ASX: CBA), BHP Billiton Limited (ASX: BHP), CSL Limited (ASX: CSL) and Telstra Corporation Ltd (ASX: TLS), as the weightings of these stocks make it very hard for them to outperform if the S&P/ASX 200 index is under pressure.
Of course, trying to perfectly time the market will drive you insane. One shouldn’t strive to buy at the bottom and sell at the top. Nonetheless, you probably don’t need to rush to buy this sell-off and it’s a good idea to stagger your buys.
Another interesting statistic about sell-offs comes from the trading desk of Bell Potter. The broker noted that there have been 35 sell-offs in the US index of around 10% over the past 39 years and that the S&P 500 re-tested its lows in 94% of the time.
This may give some hope that the correction may not have far more to go given that the “bottom” is only 1.2% below where the S&P 500 currently is. A break below that would be a bearish sign, and I think the index will break below that support and fall another 4%-5% before we get an enduring recovery.
However, if you thought this market meltdown is the worst you remember, you are wrong. We actually experience one almost every year. It may just feel worse this time because we have come out of two years of strong performance on the back of little volatility.
Regardless, investors with a medium to long-term investment horizon shouldn’t let this sell-off go to waste. If you are looking for blue-chip buying ideas, you might be keen to know that the experts at the Motley Fool have picked their favourite three large caps for 2018.
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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.