Is This the Start Of A Market Meltdown?

Is This a Crash or Just a Correction?

Whenever I picked up my phone last week, I kept thinking to myself, “Is this the day?” – I haven’t done that for a year or two. While the NASDAQ is now down over 10% from the top (an official correction—not that that means anything), I can’t see the ingredients for a really precipitous market collapse. That would require something material like a GFC or COVID.

A History of Sudden Market Sell-Offs

Having said that, the 1987 Crash wasn’t caused by anything in particular; it was a repricing event after a phenomenal stock-market rally. The US market was up 44% year to date and fell 22.6% on Black Monday—the biggest single-day percentage drop in history. The UK market had rallied 40% in 1987 before dropping 26% (10.8% in one day). The Australian market had gone up 60% in 1987 before dropping 25% on Black Tuesday (October 20, 1987).

What Could Trigger a Bigger Market Collapse?

In the most recent rally from October 2022, the S&P 500 index is up 76%, the NASDAQ is up 100%, the ASX 200 is up 34.4%, and the UK market is up 32.8%. If you go back to the 2020 COVID low, the rallies are even more dramatic, but arguably we shouldn’t include the COVID trough. So, we could see a repricing collapse, although these things are very rare, and the US markets are a lot more vulnerable to it than the Australian market.

Why a 1987-Style Crash Is Unlikely

Outside of a repricing event, the catalyst for a precipitous market drop is missing. I’m not sure concerns about the US going into a tariff-inspired recession are dramatic enough. While they may start a more prolonged downtrend, economic growth adjustments are generally gradual (normal), not precipitous.

How to Navigate the Volatility

You don’t have to predict anything—our MO is to react, not predict. At the moment, the markets are dropping in the US, banks are expensive here, and resources are going nowhere. The main debate is going to be when this sell-down turns into an opportunity. We don’t know that yet, and the only way to spot it will be after it starts. It hasn’t started yet.

And as I wrote the other day in the newsletter, it could easily be led by Big Tech once again. It is much easier to inflate a balloon that’s already been blown up before. Let the markets unfold. Good game.

The Only Market Rule That Matters Right Now

My main priority is “Don’t miss the bottom” and “Don’t get sucked into a dead cat bounce.” It’s never easy. More decisions tomorrow, and the next day, and the next day.

The decision today is “Grab the popcorn and watch the Sh#t Show.” But don’t assume anything. When people are running around with their hair on fire, it means one thing—”Opportunity!” Be Spock—cold, unemotional, decisive, logical.

Read more about the 1987 Stock Market Crash HERE.

There are two other questions apart from “Is this going to collapse?”.

• Is this the start of a prolonged US market downtrend? Possible – it depends on how long tariffs stay around and what damage they do to the US economy. With Trump we have on idea whether this is all noise or permanent.
• Is this simply a short-term correction and a buying opportunity? Also possible. We don’t have to decide on that until the balance of probability suggests it is so, which it will or won’t one morning.