15 September 2021

The market in New Zealand has been flat for the past six months. I’d say that part of the reason for that was that people were anticipating an interest rate rise by the Reserve Bank.

However, the official cash rate (OCR) rise hasn’t happened because the decision turned out to coincide almost exactly with the latest lockdown, and the New Zealand market’s taken off.

It’s hitting new highs and I think that’s because people think, well, the damage has been done to the New Zealand economy, and another lockdown means that interest rates are probably going to be off the table for longer than expected.

And there’s a lot of government assistance around which, in this strange world we live in, people think is a good thing for the markets.

Hitting new highs

Overseas, America has been hitting new highs often in the last 12 to 18 months. The market’s just started flattening out, having come off a period of five consecutive down days in a row, however, it did bounce back today.

I’m conscious that it’s September and going into October, which are traditionally the months when the US market does sometimes have a big correction, so I’d say it’s a good time to be a bit more cautious.

They call it the October Effect. All the biggest crashes in the US stock market have happened in October – the Bank Panic of 1907, the Stock Market Crash of 1929, and Black Monday in 1987 were all in October.

Even if you look at the history of the stock market over the last 150 years or so, September’s usually the worst-performing month.

So far, that’s been the case and the market has been down.

US$3.5 trillion spending

Certainly, the US government is looking to conjure up US$3.5 trillion for infrastructure and other projects, which you’d think would boost things, but it’s not happening immediately.

There are some shares which are still managing to perform in this environment, like the digital businesses that don’t have to rely on making things or getting people into factories or offices.

We’ve seen the likes of Google and Facebook and other companies which deal with information and where staff can work from home, performing extremely well.

The other trend is towards online shopping, which is accelerating because more people are in lockdown and getting used to ordering that way.

It’s the traditional retailing and manufacturing businesses which are suffering.

Lockdowns bring investors

The lockdowns have been generating a lot of this year’s boost in the stock market. We’ve found that people are more interested in the stock market when they’re in lockdown.

With people mainly at home, a lot of the traditional sources of entertainment where people take a bit of a punt, like sports gambling, are not on the table, so people are finding the markets. It’s something to do, play the markets.

Technology is really driving that. The ability for people to trade relatively cheaply through their phones has been just the best thing for investing.

In fact, last year was the first year that the New Zealand Stock Exchange had more retail trades than wholesale trades.

There’s a massive swing just from people trading individually on their phones.

As an app that offers analysis and commentary, that’s where we at Stockfox come in, offering information to help people make better investment decisions.

Watch out for taxi drivers

There’s a saying on Wall Street that when taxi drivers start giving you stock tips, watch out.

But I don’t think we should be worried.

I’d say that Bitcoin was filling that particular niche at the moment. A lot of people are attracted by anything that smacks of easy money, so they think it can only keep going up.

David McEwen is a share market commentator, analyst, and the founder of Stockfox. www.stockfox.app