Business editor-at-large Liam Dann talks to Pie Funds CIO and founder Mike Taylor about risks to watch as we head into Wall Street's "crash zone". Video / Getty Images
When it comes to Wall Street meltdowns, September and October seem to have an outsized place in the popular imagination.
It’s not surprising when you consider the three biggest crashes in modern history happened across these months – October 1929, October 1987 and September (through October) 2008.
Are we indanger of a repeat performance? Pie Funds chief investment officer Mike Taylor talks about some of the risks and why he thinks we might be in better shape this year.
People remember those three big crashes because of their magnitude and effect on the global economy, says Taylor.
“It’s just a time when investors become slightly more nervous because of the seasonal effect, as we refer to it.”
“We are in a world that is Northern Hemisphere-dominated. So people come back to work and back to school at the start of September. It’s almost like a new year as we think of January, February.”
While some dismiss it as superstition and point to numerous sell-offs in other months across the years, the data shows there’s some truth to what has been dubbed “the September effect”.
Website Investopedia notes September is the month when Wall Street’s three leading indexes (the Dow Jones, Nasdaq and S&P 500) “usually perform the poorest”.
“Since 1950, the Dow Jones Industrial Average (DJIA) has averaged a decline of 0.8%, while the S&P 500 has averaged a 0.5% decline during the month of September,” Investopedia notes.
Pie Funds founder and chief investment officer Mike Taylor.
But typically, the big crashes have happened after periods of “irrational exuberance”, Taylor says.
“If you look around the world, we don’t really have that now.”
New Zealand, Australia and other markets were in the doldrums with slowing consumer spending.
“It’s not the environment that usually sets us up for a crash,” he said.
It was true some tech stocks were still at elevated levels, but the recent “flash crash” in August has taken some heart out of the market, Taylor said.
It was healthy for stocks like chip maker Nvidia to have a pause and a bit of a pullback, he said.
“I mean, let’s just rewind it. This is a company that’s added almost $3 trillion worth of market cap in a couple of years. It’s come a very long way and, of course, you know, even the current quarter is beating market guidance. Revenue up over, you know, 100%. So it’s massive but, at some point, it must slow down.”
The other cause for confidence going into September was that the US Federal Reserve had signalled very explicitly that it would begin cutting interest rates this month.
One 25-basis-point cut was now seen as almost certain, and there was potential for more in quick time if required.
“They’re able to be very accommodative if we need it,” Taylor said. “It doesn’t feel like the set-up for a crash.”
“I could be wrong, but it doesn’t feel like that. It is a bit different this time.”
In this month’s episode of Market Watch, Taylor also looks at the New Zealand result season and outlook for RBNZ rate cuts, and discusses the rise of gold to record highs in recent months and how it compares to Bitcoin.
The Market Watch video show is produced in partnership with Pie Funds.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist. He also presents and produces videos and podcasts and is the author of the best-selling book BBQ Economics. Liam joined the Herald in 2003.
