Much is being spoken about the stock markets currently and whether we are seeing the start of yet another financial crisis, nothing is certain but this week saw further troubling figures coming from the US stock markets.
Most investors will know that a balanced and diversified portfolio is key to risk management with many turning to FANG stocks as the base of their portfolio.
FANG is the acronym for four high-performing technology stocks in the market as of 2017 – Facebook, Amazon, Netflix and Google (now Alphabet, Inc.).
This week saw poorer-than-expected earnings from tech bellwethers Amazon and Google-parent company Alphabet. Their shares fell 9.2 per cent and 5.9 per cent, respectively, in the premarket.
In a recent article by CNBC, they wrote:
There were “high expectations” for this earnings season, King Lip, chief strategist at Baker Avenue Asset Management, told CNBC. “The earnings are not coming in as great as people had suspected,” Lip said, adding that “for Amazon specifically, forward guidance was surprisingly light.”
Amazon said Thursday that it expected revenue to come in the range of $66.5 billion and $72.5 billion in the fourth quarter, well below the Street’s estimate of $73.79 billion. Alphabet’s results also disappointed, with the internet giant reporting revenues of $33.7 billion in the third quarter, versus an expected $34.04 billion.
If this was not troubling enough in an article this week by By Shoshanna Delventhal of Investopedia she wrote: “The S&P 500 Index is officially at a loss year-to-date (YTD), closing down 3.1% on Wednesday as U.S. equities continue their free fall.”
She goes onto say that one market watcher is predicting that we could see stocks fall another 10 per cent before we see the market level out, forecasting the sell-off could take as long as 14 to 16 weeks.
This is a long period of uncertainty for your average investor.
Only a short few months ago we saw the S&P 500 hitting all-time highs, whilst this week it is on the verge of entering correction territory.
Over 70% of the index’s components are currently in a correction or worse, defined as a 10% or more dip from a 52-week high.
Pushing many stocks across a range of industries into a bear market.
In an interview with CNBC’s Trading Nation on Tuesday, Piper Jaffray chief market technician Craift Johnson indicated that the worst is yet to come for U.S. equities.
“We had this kind of fake-out/breakout scenario. It’s ended up becoming a fake-out similar to what we had seen in 2000 and 2007 and now we’re coming back down to retest support at 2,700,” said the analyst.
Before Tuesday, the S&P 500 had not fallen below to 2,700 mark since late June. In February’s sell-off, the index sank to 2,532, and on Wednesday it closed at 2,656.
“Usually when we get to this kind of weak internal readings we end up seeing some sort of flush-out. I think that flush-out is still ahead. I think it’s going to be another 5 to 10 per cent lower from here and it’s probably going to take about 14 to 16 weeks to work out itself out,” stated the Piper Jaffray technician.
Moving forward, Johnson sees an “investable bottom” for the S&P 500 near the “long-term uptrend support line” at around 2,500. “It probably is going to be a little bit longer before we get there,” he added.
Susquehanna market strategist Stacey Gilbert chimed in on the CNBC segment with a cautious outlook for the market, noting that her “biggest concern for the market right now is not what’s known, it’s the potential gap risk that’s out there. If we do go down, I am worried that the down drop is significantly larger than obviously… what we would see on an upturn.”
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