The Strategist

American indices are losing ground

11/21/2018 - 12:11

Following results of the last two days of trading, the Dow Jones index lost 1000 points, rolling back to the levels of 2017. The S&P 500 index, which pulled up earlier this year, also lost some points. Experts believe that the current and October stock crashes are interrelated and there are serious concerns of investors regarding immediate prospects of the global economy. Some investment bankers already say that going to cash may be the most optimal strategy for 2019.

Carlos Delgado
Carlos Delgado
Collapse of the stock market, which the American trading floors experienced over the past two days, was in fact a repetition of the events of mid-October, when several negative factors influenced investors' sentiments. The complex of negative expectations led to the fact that according to the results of yesterday's trading, the Dow Jones and S&P 500 indices lost all oints gained from the beginning of the year and returned to the levels of 2017.

The nervousness of investors on Tuesday was caused by a new decline in oil prices, a corporate scandal in the Renault-Nissan-Mitsubishi alliance, poor reporting by large retailers and negative expectations about future profits of high-tech companies. As a result, companies in the energy, automotive, retail and technology segments have become the leaders of the fall.

Dynamics of high-tech market leaders' quotes - Facebook, Apple, Amazon, Netflix and Google - turned to be particularly painful for experts. Quotes of all these companies on the basis of yesterday's trading lost about 20% compared with their peak last year.
"The sale of their shares is a continuation of the migration trend of investors from high-sounding high-tech names and concerns about the trade conflict between the US and China," Nick Sargen, senior investment advisor at Fort Washington Investment Advisors, quoted by The USA Today.

However, yesterday's fall affected not only companies of those sectors about which negative news has been received in recent days. The quotations of leading banks fell by 1.5–3%, a papers of a number of clothing manufacturers - by 1–1.5%, and food manufacturers - by 1-2%. This made the experts say that there is a relationship between the October collapse and the current one, and the reasons for the fall are fundamental factors. “This is similar to the lingering concern of investors for about the same reasons that we saw in October. This is a concern about the slowdown in the economy,” Dr. Craig Callahan, President of Icon Funds investment company, told CNBC television.

At the same time, analysts of one of the largest investment banks in the United States and the world, Goldman Sachs, do not exclude a possibility that the situation in the markets can develop in such a way that cash outflow can become one of the most promising strategies in 2019. “We expect that in 2019 the S&P 500 index will show a very moderate growth. Adjusted for risks, the income from investing in shares of this index will be less than half the average of the last years. For the first time in recent years, cash will become a very competitive asset in relation to stocks,” says an analytical note from Goldman Sachs for investors.