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US Stocks turmoil continues

21/11/2018

The Dow Jones (#DOW30) and S&P (#SP500) both fell sharply yesterday, with the favoured FAANG tech stocks (Facebook, Amazon, Apple, Netflix, Google/Alphabet) right in the firing line, having declined at least 20% from their 2018 peaks. Whilst this decline was not entirely unexpected, it was interesting to note that poor earnings figures from Target, a large “cheap and cheerful” type discount store operating in roughly the same space as WalMart, were instrumental in souring the mood. Some fund managers and financial oracles might well declare that stocks are still “overpriced’, but it’s always worth remembering that usually they have a vested interest in being able to buy cheaply, and talking stocks down just enables them to do exactly that. This just emphasises the underlying nervousness of equity markets, and it’s difficult to see any immediate source of confidence in the near future. In this context we also feel that the current weakness has further to go, but that is simply because we are cognisant that the history of equity markets is one of rally and correction. Smart fund managers will already have hedged some of their equity positions with Put options for exactly this type of scenario, and that will at least give them something to be genuinely thankful for as they sit down to the traditional turkey dinner tomorrow.

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