I’ve had numerous questions from investors about whether I thought the high-flyer valuation correction, that has started on Wall St and spread to Australia/New Zealand, would be the trigger for a broader equity market correction? This is obviously the key question and today I will try to answer it in an Australian context.
No doubt broader equity market corrections can start when the stocks that have previously led the rally, run out of momentum and turn south. The initial reaction is a rotation from high-flyers to laggards, or in the current US example, from high-growth tech stocks to relative value industrial stocks, but the second leg can often be an asset class one, where the entire equity market corrects.
At this very moment, I am not sure whether this is going to be a “stage 1 rotation” or a “stage 2 broader correction”. Either way, it is highly unlikely the broader US equity indices can advance while its highly valued market darlings hit a bit of an air pocket.