It reminds me of the old saying that rising and high petrol prices are a tax on economic growth. This is true and the opposite is happening now - low petrol prices are like a tax cut for consumers. It remains the case that the global economy is growing, at a respectable pace, with the unemployment rate falling in all major industrialised countries.
The headline grabbing downgrades to the global economic growth outlook in 2016 from the International Monetary Fund were actually a reduction the rate at which the pace of global economic growth will accelerate this year rather than signaling weaker growth.
Add to all of this the still super-stimulatory stance of monetary policy around the globe and the disjunction between markets and the real economy is obvious. For investors losing the shirt off their back, that is cold comfort.
The market falls for those holding stocks are substantial and will, as we saw with the Westpac Melbourne Institute of consumer sentiment release, dampen confidence. Those consumers might be happier next month when they see the savings to them from lower petrol prices.
Over any reasonable time, markets do reflect the state of the economy. Seldom, if ever, do stock markets sustain a fall when there is strong economic growth, nor rise when an economy is in recession. Which is another way of saying that the current market turmoil is unlikely to persist as the economic expansion feeds into corporate earnings and profitability.
The catalyst for a change in market sentiment is not clear. It may be the US Federal Reserve pushing back the next rate hike in the cycle, of more closures of mines from resources companies which will cut supply and boost prices for commodities. Suffice to say, irrational price action in financial markets does occur from time to time, and what we are witnessing in recent weeks is a prime example of that.
It can be nerve wracking to witness such moves, but for investors with a medium to long term time horizon, it might be prudent to look away for few weeks and wait for common sense to return.