What happened to the STW share price?
The SPDR S&P/ASX 200 Fund [ASX:STW] tracks the ASX200 broad market index. STW fell today as the Aussie market drifted lower to reflect a pullback from the US and European markets overnight.
Why did STW shares do this?
One important factor behind movements in the STW has been its correlation with the global market index, particularly the US and the European markets. In essence, global markets are producing strong correlations in the current bear market. They are moving together.
This is usually the case for global markets during bear markets. As uncertainty and volatility increase, systematic risk starts to take over fundamental pricing, causing a mispricing in the individual assets in the market.
TW tracks the Aussie market, which is precisely doing that right now.
Macro events tend to drive markets during bear markets such as now. Oil price, the US economy, central bank actions and China are the main macro drivers in this market right now.
What now for STW?
Investors buy STW to track the broad index. There are good reasons behind such a ‘passive’ strategy. For any investor pursuing a ‘beta-only’ strategy, STW is the most direct asset to achieve that.
Going forward, macro events will continue to drive STW pricing. This will also continue to drive correlations between major markets. To pinpoint on a precise forecast for the market is impossible at this point. But what we do know is the market has already gone through a considerable amount of drawdown. This means we must be getting closer to the bottom.
I advise investors to strengthen the risk management side of their portfolios with measured trades on low-correlation or negative-correlated assets such as gold.
Emerging Market Analyst, New Frontier Investor