Every Tuesday afternoon we publish a collection of topics and give our expert opinion about the Equity Markets.

The ASX notched its largest single-day loss since Covid on Monday, following leads from the US on Friday, which saw a sea of red from tariff-related recession fears. After an initial burst at the bell, which saw the ASX200 plunge over 6%, the market clawed back some of the losses and ended the day down 4.2%, wiping out almost A$100 billion in value. While these large single-day moves are unsettling, they’re not unprecedented and are part of the volatility of the stock market. History shows us that while markets can react sharply to short-term news, they also have an uncanny ability to regain composure and recover. ABSI this week covers large single-day moves in the market and why it is a great opportunity to buy stocks at a discount. 

It is important to appreciate that yesterday’s move was large, but it doesn’t rank in the top 10 worst trading days on the ASX. That crown goes to Black Tuesday in October 1987, when the ASX lost ~25% of its value. Other more recent large single-day drops occurred in March 2020 at the onset of the Covid pandemic, which wiped 9.5% off the index. October 10 2008, was also a bad day for the ASX when the index lost 8.2% of its value during the GFC. On a similar scale to yesterday’s losses was the 4% decline on August 5 2011, due to the escalation of the European sovereign debt crisis with Monday, August 8 also seeing a 2.9% decline to continue the trend.

Source:  Google Finance

The large losses yesterday were driven by news of aggressive new tariffs announced by US President Donald Trump, a political manoeuvre that’s spooking global trade watchers. But let’s be clear — this is not 2008 or 2020. During Covid, the whole world shut down and there was a perfectly rational fear of the unknown which warranted sharp drops in global equity markets. Likewise, during the Global Financial Crisis, we faced a near-systemic collapse of the global banking sector. Banks weren’t just under pressure — they were teetering. Credit markets froze. Businesses couldn’t borrow. Households couldn’t refinance. Entire economies seized up.

The tariff threats, while disruptive and certainly capable of slowing trade in the short term, are overblown and do not pose an existential threat to the global financial system. Markets are reacting swiftly to a headline without fully digesting the context. Yesterday’s selloff is more akin to October 1987, not in terms of the scale of selloff, but more around the underlying drivers. Black Monday (Tuesday in Australia) came as a result of market euphoria and excessive valuations fuelled by excessive optimism. Today, the US market, and to a lesser extent the Australia stock market, are overvalued and trading well above their long-term averages (based on any number of metrics). A correction was warranted to take the heat out and for participants to reassess their portfolios.

Source: Google Finance

Take Commonwealth Bank (ASX: CBA) as an example. Yesterday, it dropped over 6%, but this is a company that is still up over 22% over the past year and is still trading at ~24x earnings, despite negative growth in both revenue and profits in its last financial year. CBA is a great business, but investors shouldn’t be paying 25x profits for a piece of it.

What we’re seeing is a valuation reset, not a fundamental collapse. And that distinction matters. For active investors, days like today are gold. This is when stock pickers earn their keep. Oversold conditions create buying opportunities for those brave enough to step in while others are running for the exits. If you’re a long-term investor, this is not the time to panic. This is the time to reflect, reassess, and for some, to buy.

While the market’s having a tantrum, the fundamentals of the Australian economy remain intact. Inflation is under control, employment remains strong, and corporate balance sheets, for the most part, are in good shape. If bigger cracks start to emerge in the economy, the RBA can always step in and provide relief through monetary policy. Remember, there is wisdom in patience and opportunity in volatility.

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