Remember just a few weeks ago when the sell-off in the Chinese stock market was going to lead to a global retreat from equities, spur a worldwide recession, and drain the life out of the manufacturing industry?
Chinese stocks, as measured by the benchmark Shanghai Composite Index, touched a new record Wednesday, pushed higher by real-estate and bank names.
It was only in late February when Chinese markets plummeted, sparking a major pullback in stock markets around the world. At that time, many pundits were vocal in expressing their feelings that the selling marked the beginning of the end for investors who had taken on too much risk in their stock holdings. As we remarked back then, it doesn’t take much to get folks in panic mode when it comes to big drops in the stock market.
There was no major catalyst sparking the selling in China a few weeks ago – other than the fact that stocks can’t go up in a straight line forever. Investors follow the herd all the time – up and down – but the selling is usually more potent.
Put simply, fear is more powerful than greed.
Now, that’s not to say it’ll be smooth sailing forever. Just as it’s wrong to say a dramatic, one- or two-day swoon in stocks is the sign of something nastier, so to is it incorrect to say a new record high is going to pave the way for more record highs.
The bottom line is that we don’t know, but the fundamentals of the world's largest economies appear to support continued global growth. Not slam-dunk growth, but solid, steady growth, which should suit the manufacturing sector just fine.