11:50 Wednesday 24 October 2018.
Worldwide stocks set for their worst month in three years and investors are getting nervous. Global tensions are mounting, geo-political and domestic issues are spooking the market and this past week has highlighted a foreboding tone on the market.
Within the world of headlines, it’s been hard to see past Brexit issues, the Italian budget woes, the terrible events surrounding the Saudi Arabian embassy in Turkey and the rising tensions caused by the US China trade wars. Whilst all of these are serious issues, one gets the feeling that it’s the combination of them all occurring at the same time that might be causing such a downbeat view on global investment. The aforementioned news and headlines are reoccurring themes and situations that take place from time to time with just the names of the main players changing, but it is quite plausible that with such a barrage of negative stories circulating, many investors are unnerved and seeking safe havens until smooth seas present themselves.
Of course, there are many other factors affecting the market. With regards to US equity and the sentiment place on the global market in general, it currently appears to be suffering from its own success as we move through the current earnings season. Regardless of political views one might have, the Trump effect on the US market has been outstanding. Unemployment has hit historic lows, and the stock market has reached historic highs in recent months. Q2 reporting for many US companies was generally positive, but as Q3 reporting begins, investor expectations may have been inflated by recent successes and the market has reacted negatively to earnings that didn’t match the gains from the previous quarter and have been disastrous for companies that failed to meet analyst projections. Heading into October, the Dow, S&P and NASDAQ were all riding high, but have seen major dips in the last two weeks.
As per market tradition, when the equity market looks unstable, many investors revert to a risk off position and turn to safer havens such as gold which is starting to show the potential for a convex curve in a reaction to the current market trend. Whilst gold is down on the year, it has shown a near 5% gain since mid-August.
The UK market has reflected the sentiment from across the Atlantic. The FTSE saw highs of 7903 in May, but has dropped off to as low as 6928 this week taking the year to date performance to -8.91%. The GBP has also suffered against the USD this year, currently sitting below the 1.30 mark and down 4% on the year. While some of the headlines detailed above will be taking their toll on the British marketplace in general, none of the will be hitting as hard as the never-ending Brexit narrative. As Britain’s exit from the European Union drags on, it seems harder to believe that the ongoing issues will be resolved anytime soon causing further uncertainty. The biggest negative coming out of such insecurity is the harmful effects that certain business headlines are having on the market without being supported by any factual basis. Much speculation has been made of companies moving out of the UK, producers being deprived of essential supplies and labour resources becoming sparse, but until a resolution to Brexit has been achieved, none of these factors can realistically be gauged and until then these headlines remain as scaremongering.
One view on the market right now would be that the negative sentiment is nothing but a current trend on the back of headlines and overblown expectations. If this were the case, the current marketplace presents investors with the opportunity to buy the dip. Taking just a small view of the current situation, the FAANG stocks (Facebook, Amazon, Apple, Netflix and Google) have all had a poor month with only Apple scrapping through to positive territory. This could be an ideal time to enter the US tech sector with hope of valuations reaching the highs of earlier in the year. Heading towards Christmas, physical sales and advertising revenues tend to increase and subscriptions rise. However as skepticism remains in the market, investors will be wary of a dead cat bounce following any immediate positive market movement.
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