Anthony Rowley

Macroscope | The great stock market reset is on its way

The coming stock shakeout will force the realisation that savings are being directed into areas of fleeting gain rather than at real need

Reading Time:3 minutes

Why you can trust SCMP

Traders work on the floor of the New York Stock Exchange on January 29. Markets are swinging but the unmistakable trend is downwards. Photo: Reuters

Anthony Rowley

Published: 7:30pm, 3 Aug 2024

The much predicted correction on Wall Street and in other markets has begun, and market foundations are beginning to shake as faith in both the tech boom and the US dollar waver. This will produce a major reset, not only in prices but also in how stock investment is viewed.

What kind of reset will this be? One where management of the world’s savings and investment is no longer decided largely at the whim of fund managers, supposedly responsible, yet who often seem to treat this critical economic activity more as a great gambling game.

How else are we to explain that just over half a dozen stocks – the so-called Magnificent Seven comprising the tech giants Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia and Tesla – have come to account for more than 30 per cent of US stock market capitalisation while vast areas of economic activity go underfunded? Are savings invested in stocks in that part of the world in capable hands?

Such questions may seem frivolous or abstract when markets are inflating rapidly but they take on critical importance once things come down to earth, which is happening now.

Markets are swinging between periods of price erosion and sudden rallies but the unmistakable trend is downwards. That we are about to enter a period of significant currency turbulence after recent central bank moves will accelerate this trend from a creep to a trot, then a gallop.

The investor retreat from what Reuters calls “glitzy megacaps” is threatening to snowball into a “multipronged sell-off that has hit everything from cryptocurrency to gold”.