KEY POINTS:
All stock market slumps are not created equal and today's market slide - following the big sell off on Wall St over night - is not nearly as worrying as the panicked freefall we saw around the world last week.
This is far more predictable stuff. Grim, but
predictable. It is based less on fears that the entire financial system is about to collapse and more on the less exciting stuff of analysts crunching the numbers and forecasting significantly reduced earnings for listed companies as global economies slow.
It is not good but at least it has some logic and structure to it.
The US has been declared "officially in recession". No surprise really, but that announcement was always going to be followed by a bad day on Wall St.
As much as it would be nice to think that slower growth and reduced profits should have priced in to the market already - it is almost always the case that there is a further sell off when the already predicted numbers emerge. We see it regularly when a local listed company forecasts a big drop in profit. The price drops immediately after the forecast and then despite the fact that there is no surprise when the result is delivered it usually drops again.
The reaction on Wall Street - an 8 per cent fall on the Dow Jones - has been overdone because their is still plenty of fear in the minds of investors. Despite all the good that has been done by governments in the past week to shore up the banking sector we will remain in the shadow of this crisis for some months yet.
Naturally enough the NZX has followed the lead set by Wall St as it will continue to do. This is going to be an extremely volatile period with plenty of big rallies as well as falls. We may see new lows tested on the local market. But we are also heading in to a purple patch for those investors who are feeling game.
To paraphrase The Wall Street Journal's Brett Arends - when your favourite retail store slashes the prices on all its stock you don't go running out of the store in fear. You start looking for bargains.
