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Experts warn a share market ‘heart attack’ is months away

Tristan Harrison
Crash

Experts are warning that a share market ‘heart attack’ is months away. Is the ALL ORDINARIES (Index: ^AXAO) (ASX: XAO) in danger?

In what I’m sure will bring you some Christmas cheer, rising borrowing costs for businesses in the US and Europe are threatening a recession within months and some indicators now resemble events leading up to the GFC according to some analysts.

Doesn’t that sound fun?

The Fed has been steadily raising interest rates whilst reducing its balance sheet by US$50 billion a month. Shares within the All Ordinaries (and outside it) like Sydney Airport Holdings Pty Ltd (ASX: SYD) are largely judged against the risk-free rate of return of the US 10-year treasury yield.

Higher bond yields should equate to lower share valuations because investors can get higher returns from safer assets.

The AFR quoted Simon Ward from Janus Henderson Group (ASX: JHG) saying that his leading indicator for the health of US companies has turned very negative for the first time since the Lehman crisis, which points to a sharp slowdown next year. He said “When this measure of cash contracts it means companies plan to cut back.”

Should you worry?

I think it’s important to remember that we can always point to something negative that’s going on. Russia, North Korea, trade wars and Brexit have occupied the news cycle over the past two years.

Think a bit further back, Greece seemed like it would bring down the whole of the EU. But, that crisis has long disappeared. From the news anyway, Greece is not exactly storming ahead economically.

Over the long-term the share market has returned an average of 10% per annum, which includes the down periods too. Whilst it’s completely true that a share market collapse could be just around the corner, it’s also true that the global economy has recovered every time and gone on to new heights.

That’s why I strongly believe we just have to ignore the noise, think long-term and stick to quality growth shares like REA Group Limited (ASX: REA), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and Appen Ltd (ASX: APX).

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Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of Appen Ltd. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.