Displaying items by tag: bear market

(Beijing)

With the US-led tariffs battle in full swing, Americans tend to focus on how such tariffs are affecting our own country. However, to understand how things may play out, we need to see what is happening on the other side. While US markets have taken a shallow hit from the potential trade war, Chinese shares are plummeting, and a very near to a bear market. Both the country’s Shanghai and Shenzhen indexes are at almost a 19% loss from their peak in January, just a hair off the 20% loss that qualifies as a bear market. According to one Chinese securities analyst, “It’s mainly the trade war that has created such panic in the market because the latest developments have surpassed the expectations of many people in China”.

FINSUM: We wonder how much this kind of market pressure will compel the Chinese government to give in to some of the US’ demands? The counter point to that view is that since the country is not a democracy, the government doesn’t really have to worry all that much if people are upset. That is a very blunt view of the situation, but one we think is fundamentally true.

(New York)

In what might be a sign of a rough patch to come for the global economy and markets, 16 of the largest global banks have collectively just entered a bear market, falling 20% from their peak. Those 16 come from among the 39 global “sifis”, or systemically important financial institutions. One research analyst says “If these banks are supposed to be systemically important then policymakers ought to be watching them to see what is happening”.

FINSUM: The odd part about these falls is that rising interest generally help banks, as they have wider net interest margins. So why the downturn?

(New York)

It is not pleasant to think about, but investors may need to face reality—the bear market may have arrived this winter. Stocks are already well into a correction and the immediate path forward doesn’t seem bright. All that said, not all the indicators are showing a bear market to come. Bank of America has assembled 19 indicators which have forecasted bear markets in the past. Right now, only 13 of the 19 indicators have been tripped, meaning the market may have room to move higher. While 13 out of 19 may sound high, this level was usually reached two years before the peak in prices in previous bear markets.

FINSUM: If you buy into these types of indicators, the big x-factor is how quickly the other 6 could be tripped. The big problem, of course, is that the returns at the end of a bull market tend to be the strongest, so one does not want to take all their chips off the table.

(London)

If you are thinking about putting some money into foreign stocks, you might want to wait. Overseas stocks need to go through a bear market before they are worth buying again, and they may be well on their way. The MSCI EAFE is seriously underperforming the US market, but don’t be fooled, it has historically done so when when it is ready to continue to underperform, not the other way around.

FINSUM: The big question is why foreign stocks are underperforming The perceived wisdom is that investors want to chase fast moving growth stocks, which are predominantly in the US.

(New York)

Advisors large and small need to worry about this next bear market, as the latter may not survive, according to Barron’s. The reality is that there are many small RIAs who have kept their business alive because of the long bull market. However, “The smaller you are, the more vulnerable you are, because if the market goes down 15%, it gets harder and harder to run a business”, says Fidelity’s clearing division. Margins are already quite slim for small RIAs and lower AUM from market losses would likely kill many businesses. “When the stock market drops, revenues drop, and no expenses immediately come out of the system”.

FINSUM: The big question is whether RIAs who feel vulnerable should perhaps try to sell to larger players now instead of risking a bear market.