As I write this column, the Australian sharemarket had fallen almost 5% in two trading days, before some much-needed mid-week respite.
A correction in US shares was long overdue. As the US economy strengthens, markets are factoring in higher wages growth, inflation and interest-rate rises. The Goldilocks scenario of “neither too hot nor too cold” is fading – the US economy looks hotter than expected.
Recent wages-growth data in the US and rising bond yields suggest the pullback has further to run. We might see further losses in the next few weeks, but I expect markets to recover the losses this half, albeit with higher volatility.