Displaying items by tag: correction
Investors might be growing a little uneasy if they have been paying attention to market leaders. A number of stocks that have led the big market rally are starting to falter, and that could be a sign of a major pullback to come. Amazon, Zoom, Netflix and other leaders of this rally have recently plateaued or dipped, which could be a sign that the rally has lost strength. If those stocks start to lose ground, a lot of the gains the market has seen are at risk because of the chance that investors could capitulate once the indexes loses leadership. One equity strategist at BTIG put it this way, “We’d suggest that the ability for the broad market to build on its recent gains is contingent on names like Zoom, Moderna, Netflix and Amazon and other highflying ‘shelter-in-place’ names whose momentum has waned in recent days, to at least sustain their meteoric advances as leadership passes off to the more cyclical areas and themes”.
FINSUM: We think there is a degree of truth in this. If the big gainers start to fade, it is hard to imagine the laggards will suddenly start holding the market up.
Storied research firm Bernstein Research has a recommendation for you, and it is a brave one—buy stocks. The firm says that on a tactical buying basis, it is time for investors to re-enter the market. Bernstein acknowledges that they have no idea when the coronavirus situation will clear up, but that given the general decline in indexes and that fact that sentiment has swung negative, it only makes sense to buy because the market has become too bearish.
FINSUM: We have to give Bernstein credit here for a bold call. Most analyst teams tend to hide or vacillate, but this is a strong call.
Global and US stocks are teetering on the brink of a major correction right now. US indexes fell around 3.5% and fears over the spread of coronavirus and its impact on the economy continue to rattle the psyche of markets. One analyst summarized the deepening fears of the virus’ potential impact this way, saying “When countries are closing borders, the threat of an outbreak is becoming more pronounced in Europe and the Middle East and supply chains are just going to be more disrupted, how do we model risk when we can’t even model economics with any confidence?”.
FINSUM: There was an early morning bounce in Asian markets that fizzled. The news today is not any better than yesterday. It is easy to imagine the bottom temporary falling out of markets.
The bond market looks primed for a big correction, says a top asset manager. Bonds have been surging in price as yields fall because of fears over coronavirus, but they seem likely to have a sharp pullback once the news cycle focusing on the virus moves on. That is the argument coming out of asset manager WisdomTree. According to the firm’s head of Fixed Income Strategy, if we have a sharp “V” shaped recovery, then bonds might see yields jump sharply (and prices fall sharply).
FINSUM: WisdomTree made one other excellent point that is not as obvious. US companies are starting to seek alternative suppliers away from China. As this happens, there is likely to be a transitory pickup in inflation since prices are probably going to be higher from suppliers outside of China. Accordingly, bond markets might also react sharply to a rise in inflation.
Calm and collected asset manager Vanguard has just made an eye-opening call about 2020. The firm’s chief economist and investment strategy chief, Joseph Davis, says there is a 50-50 chance of a correction in 2020. The market hasn’t seen a correction since December 2018, when it dropped to within a hair of a bear market. Davis says he usually sees about a 30% chance for a correction in any given year. Vanguard says that while investors were too pessimistic about recession chances this year, next year they’ll be too optimistic about re-inflation.
FINSUM: Seems a reasonable call, if rather safe.