The 3 big things keeping Livewire readers up at night

Optimism for 2025 remains high but financial markets feel as fragile as ever. Bond yields are soaring, expectations for aggressive rate cut expectations have vanished, and Citi analysts are forecasting "almost flat earnings" for the ASX this year.

Livewire’s 2025 Outlook Series Survey highlighted a number of risks at the front and centre for every investor, including:

If 2024 is any indication, the events that once caused panic and uncertainty, such as the US election, Israel-Hamas war and Japan's carry trade implosion, are now in the rear-view mirror. Since then, the market has continued to tick higher.

History shows that investors can always find reasons to sell — but markets have proven remarkably resilient over the long term. In this wire, I'll examine key data points that reiterate this pattern.

Pullbacks are normal

Market pullbacks can feel unsettling, but they are a routine and normal part of long-term investing. While headlines might frame these dips as alarming, history shows they are not only common but necessary for sustaining a healthy market environment.

Since 2000, the S&P/ASX 200 has experienced:

• 680 trading sessions where it fell 1% or more
• 52 trading sessions where it fell 3% or more
• 12 trading sessions where it fell 5% or more
• Sessions are only 53.3% of the time (up 3,376 out of 6,333 sessions)

How did the market perform after those nasty 5% selloffs?

Pretty well actually.

Where can you find growth?

If you're struggling to find companies with strong growth – it generally means you're not searching hard enough.

But to be fair, the ASX has lost a long list of growth stocks over the past 12-24 months including Adbri, Alumina, APM Human Services, Altium, Boral (now a part of Seven Group), CSR, MMA Offshore, Newmont, and Virgin Money. 

In addition, various names like A2B, Arcadium Lithium, AVJennings, Insignia, Namoi Cotton, Invocare, and SelfWealth have all received takeover offers.

So how does one find growth?

My colleague Chris Conway wrote a wire last year that outlined a handful of factors that can be important in identifying growth stocks. This included:

• One-year forward sales growth of more than 15%
• One-year forward EPS growth of more than 10%
• One-year forward EBITDA margin of more than 10%
• One-year forward ROE of more than 10%
• Free cash flow growth of more than 10%
• Cash flow return on invested capital of more than 5%

As of 4 July 2024, the scan produced 23 stocks.

The factor list of stocks was generated using Halo Technologies.

A persistent backdrop

Geopolitical tensions have long been a constant in the global landscape that often captures headlines but rarely derails financial markets. From territorial disputes to political rivalries and trade skirmishes, the world’s greatest powers are frequently subjected to events that seem poised to cause upheaval.

However, history shows that markets are remarkably resilient to these events, unless the tensions evolve into broader economic threats – Namely a recession.

The below table highlights 15 major geopolitical events since 1990 and how the S&P/ASX 200 performs after the initial conflict. 

This is not an exhaustive list of geopolitical conflicts but captures most of the high-profile ones. The S&P/ASX 200 forward returns are presented on a price basis only.

One of the more important takeaways from data is whether or not the event triggers (or coincides) with a recession.

Of the above 15 events, only four are recessionary.

• Iraq-Kuwait War: The conflict disrupted oil supplies, causing oil prices to more than double from around US$17 to US$37 a barrel. The US entered a recession in 1990-91, driven by low consumer confidence, high inflation and the lingering effects of a banking crisis in the late 1980s
• Asian Financial Crisis: Many Asian currencies depreciated significantly, leading to capital flight, skyrocketing foreign debt costs and collapsing local financial systems. This also weighed on countries with significant trade exposure to Asia, including Japan and Australia.
• September 11 Attacks: The attacks exacerbated an already fragile economy, which was reeling from the dot-com bubble burst. The US experienced a brief recession in 2001.
• Iranian General Killed in Airstrike: This event occurred right before the pandemic but we'll count it anyway.

If the event triggers or coincides with a recession, the forward returns tend to be negative. 

The bottom line – While geopolitical events often dominate headlines and create short-term volatility, they rarely have a sustained negative impact on the market unless paired with broader economic weakness.