This week on Money and Investing, Mitch Olarenshaw and I unpack the difference between a market crash and a correction, providing key insights to help you make informed decisions during volatile times.
1. Crash vs correction – defined
A correction is typically a 10% drop from market highs, while a crash is a sharper, faster fall of 20% or more. Crashes often happen over a few days and can push markets into bear territory.
2. Market performance and sentiment
This year began with a tough quarter, with five out of six recent weeks showing losses. The rapid sell-off, especially in tech-heavy indices like the NASDAQ, has left many investors unsettled.
3. Historical examples and investor psychology
We reflect on past market crashes, including the 1987 crash,the GFC, and the tech wreck. The lesson? Volatility is part of every cycle. If you’re sitting in cash, corrections and crashes can be opportunities, not threats, provided you maintain the right mindset.
4. Why it’s happening now
Much of the current volatility ties back to US policy uncertainty. Tariffs, immigration changes and global tensions have combined to shake market confidence. Investors are pricing in risks before any real outcomes are known.
5. Impact on tech stocks
Tech giants like Tesla and Apple have been hit hardest. Slowing EV sales, political backlash and supply chain risks have weighed heavily on the Nasdaq. This is a reminder of how much these key stocks influence the broader index.
6. Tariffs and inflation risk
New tariffs may increase consumer costs, especially for everyday goods. While inflation had started to ease, these policies risk reigniting price pressure, which could delay rate cuts and affect broader economic growth.
7. What to watch next
Keep an eye on producer price index (PPI), CPI, bond yields and employment data. These will indicate how inflation and economic growth are tracking. Hard data, like spending and job numbers, gives a clearer picture than sentiment-driven surveys.
8. Market reactions by sector
Sectors exposed to global supply chains, like apparel, have been hit the hardest. Meanwhile, financial institutions have remained resilient, reflecting a defensive shift in investor strategy.
9. Australia’s position in global trade
Australia faces pressure too, particularly in industries like beef exports. Geopolitical relationships will play a role in shaping how these tensions affect local producers and consumers alike.
10. Focus on the long-term
The key takeaway? Markets move in cycles. What feels uncertain now will likely fade in time. Having a long-term view, a calm mindset and sound risk management remains essential for every investor.
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