Paul McBeth is the editor of The Bottom Line and Curious News, having worked at BusinessDesk for 15 years. He’s had an active account with Sharesies and owned units of Milford Asset's active growth and aggressive funds and units of Smart S&P/NZX 50 ETF since January 2024 and has had his KiwiSaver with Milford since May 2014.
It’s almost surprising it took this long.
Fuelled by the prospect of a laissez faire approach to regulation, stock markets around the world got turbo-charged by the second coming of Donald J Trump as he cast aside almost every disqualifying factor that would have felled a lesser mortal to claim the keys to the Oval Office once more.
Then came the rapid-fire flurry of executive orders, laying bare the warning back in the days of Barack Obama that side-stepping legislative oversight would come back to bite the Democrats – and liberals in general – when someone else was in charge.
It’s awfully hard to see the Gentlemen of the Congress sign off on repurposing Guantanamo Bay and the horrors of its recent past to house deported migrants, rounded up in the latest purge of illegal aliens.
Small mercies that the remaining detainees have been shipped to Louisiana with the camps not up to US Immigration and Customs Enforcement’s standards.
And now comes the crisp realisation that the trade and economic programme pitched in Trump 2.0’s never-ending tour were actually to be believed, and that the 80-year-old Bretton Woods system establishing rules for how global commerce should take place have pretty much been torn up.
Sure, whiplash over whether Canada and Mexico were in or out when it comes to the border security-linked tariffs sent gyrations through the markets, but the fact that even the loquacious Trump wouldn’t rule out a recession coming from his trade war tipped investors over the edge.
And now we find ourselves reading headlines of market corrections – that quaint term for insiders to sum up a 10% decline from a peak without sounding too scary.
Even the bear market – where prices have sunk 20% from their highs – has the cuddly connotation of a teddy bear, rather than the vicious claws and fangs that are not to be trifled with.
Why so serious?
Which isn’t to say things are dire.
As Hamilton Hindin Greene’s Jeremy Sullivan rightly pointed out on LinkedIn, those headlines that we’re all guilty of absorbing without reading below the fold fail to capture the broader context of that single point in time.
In the case of the S&P 500, that takes it back to July 2024. And to prove that old cliché of time in the market being important, rather than timing the market, the benchmark US stock index has returned 10% on average every year since 1950.
That captures the Korean and Vietnam wars, both invasions of Iraq, Black Monday, the 9/11 terror attacks, the collapse of the Soviet Union, Brexit, the global financial crisis, oh, and the covid pandemic.
Even through the latter half of World War II, US stocks were notching up double-digit gains.
The Chinese curse of ‘may you live in interesting times’ tends to capture the extent of human history – after all, we’re an incredibly industrious species if also rather self-interested despite our need for community.
Which brings us back to the current level of heightened uncertainty in markets that warranted lead stories on Radio New Zealand and the likes of Sharesies pushing out reminders that stock markets ebb and flow in the daily chatter, but tend to rise over time.
The current escalations in the trade war between Donald Trump and the rest of the world are adding to that noise, and even the president acknowledged his beautiful tariffs will cause a little disturbance, but we’re okay with that, right?
And for all the headlines, the fact is we probably are.
Now’s not the time for fear
That bubbling on Wall Street already had some local fund managers a bit nervous about US stocks. Sure, it’s hard to ignore the Magnificent 7 and their gravity-defying ways, but there’s a reason why we pay the fund managers overseeing our KiwiSaver schemes to keep a finger on the pulse – they’re typically pretty good at what they do.
And that’s also part of the risk and reward equation that comes with investing directly, or through a managed fund, into listed stocks.
The investment community has got much better at drilling it into people’s heads that there’s a certain amount of volatility to the prices, but that noise only matters when you have to sell – or if you choose to buy.
Yes, it can be unfortunate if you’re backed into a corner where bills are biting and you have to wind up an investment when things are down, but that’s exactly the same when it comes time to sell a house – you have no power over what the broader market is like, only when you choose to engage, and even then there are times when it’s beyond your control.
This current bout of chaos triggered by Trump’s second term in office was perhaps the most certain part of his re-election.
But then that’s the uncertainty that comes with every risk, be it in life or on the market. And that’s also why we take those educated chances in the prospect of securing a commensurate reward.
The established order of the past 80 years might be coming to an end, but there are some things that always stand the test of time.
Image from Jon Tyson on Unsplash.
The column has been updated to correct a typo in Barack Obama's name.
