Is it end of the Bull Run for the Share Market?
Team Veye | 29-Oct-2018
The stock markets across the globe exhibited their longest weekly losing streak in five years on Friday, as Wall Street reacted to worse-than-expected results from US tech giants. Market analysts have pointed to the following reasons for the volatility:
- US-China trade war
- Rising US interest rates
- Rising crude oil prices
- Slowing global economic growth
- Reduced quarterly earnings from some major American companies
- Killing of journalist Jamal Khashoggi causing geopolitical tensions with oil producer Saudi Arabia
- Italy's conflict with the European Union regarding budget spending
While some of these are new addition to the list owing to recent developments, but overall, the Australian Stock Exchange lost close to $52 billion dollars in market value following the bloodbath on Wall Street last week wiping out all its gains during the last 12 months. While some consider this a technical correction, others believe that it just pre-indicator of a crash that appears inevitable now. Historically, the stock markets have witnessed a crash every 10 years and the last one was in 2008. The broad All Ordinaries index dropped 2.8% to 5,759 points — which is about $52 billion in market value.
The index hit a 12 month low immediately after opening of the market falling more than 2% from 5,800 to 5,709.40 as the ASX200 fell to 5,713. This correction came after the ASX200 reached a historic peak of 6,374 at the end of Aug’18.
There is a concern among investors that higher interest rates would bring on tighter financial conditions, and this may dampen growth going forward. Foreign investors have been withdrawing from most emerging markets ever since the US economy started growing and bond yields turned more attractive in the US amid a strengthening dollar
Shares across Europe have suffered from nerves around the Brexit negotiations, with UK government ministers still insisting that leaving the EU without a deal is a possibility. Economists predict that a no-deal Brexit would cause significant damage to earnings for companies in the UK and Europe.
The Italian government’s dispute with the European commission over its budget has also added to the risk aversion in the EU. Italy’s new government decided to increase spending dramatically, pushing the deficit to 2.4% of GDP, three times higher than planned. The commission rejected the budget under an EU review process.
The US Federal Reserve is expected to continue on its path of raising interest rates, raising borrowing costs for firms around the world. Investors have also been spooked by the threat of disruption from a trade war between the US and China.
The robust performance of the US economy in the third quarter was overshadowed on Friday by the fallout from technology company results overnight, which showed revenue growth below analyst expectations, adding to concerns that American firms will be unable to sustain profits at current strong levels. The US economy had barrelled ahead in the third quarter as consumers stepped up and spent more, keeping it on track for the best annual performance since 2005. The American government stated that the economy expanded at an annualized rate of 3.5% between July and September after the 4.2% pace in the previous quarter. But there were signs that the growth could cool in the coming months.
Given so many global developments with each one of them having a negative impact on the global stock markets, we are of the opinion that it would be wise for the investors to follow restraint at this point in time. We surely cannot predict where the tide is heading but there is no need to press the panic button as of now. However, it would be wise to keep your strategy chalked out for both positive and negative developments so that you are not taken off-guard.
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