It has been a rough couple of days for equity investors, assharply over this period. We can safely assume that the main catalyst for these turn of events was the rocketing US yields, along with fears of a global economic slowdown.
According to the International Monetary Fund (IMF), the global growth estimate has been lowered to 3.7 per cent for 2018 and 2019, which is a decreased from the 3.9 per cent anticipated by the IMF in July. The group downgraded its outlook for almost all major economies, citing the ongoing USA-China trade war as the main reason.
Moreover, luxury stocks were among the worst losers as the luxury company LVMH, owner of Louis Vuitton, Christian Dior and Dom Perignon, warned of slowing demand for luxury goods in China. The price of LVMH crashed by nearly 10 per cent in Paris on Wednesday, and it dragged along with it other stocks to lower positions in this sector.
The same thing happened in the US on Wednesday, as the company Trinseo became the second chemical manufacturer this earning season to downgrade its earnings outlook, when it warned of disappointing results because of pricier raw materials and slow sales in China. The stock dropped to record lows and lost 18 per cent after dropping 6 per cent on Tuesday.
Additionally, the newly created communications sector, which contains some of the well-known FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) has not been met with much of an interest and FAANGs are dropping like stones. On Wednesday, these stocks experienced the biggest decline since July and are down to their lowest since May. FAANGs have been down by 10 per cent over the last nine days.
To conclude, equity indices have been poised for a correction for some time. It seems that the sharply rising US yield curve, still hawkish Fed and higher oil prices are causing some repricing of future economic growth, which has become a very negative factor for stocks worldwide.
However, to end on an optimistic note, all the major US indices remain above their respective 200-day moving averages, which could mean that the long-term bullish trend is still intact for US benchmarks. These averages could be tested soon and that could be the crucial moment for equity investors, as breaking below could cause a larger correction worldwide.
© 2000-2022. All rights reserved.
This site is managed by Teletrade D.J. Limited 20599 IBC 2012 (First Floor, First St. Vincent Bank Ltd Building, James Street, Kingstown, St. Vincent and the Grenadines).
The information on this website is for informational purposes only and does not constitute any investment advice.
Making transactions on financial markets with marginal financial instruments opens up wide possibilities and allows investors who are willing to take risks to earn high profits, carrying a potentially high risk of losses at the same time. Therefore you should responsibly approach the issue of choosing the appropriate investment strategy, taking the available resources into account, before starting trading.
Use of the information: full or partial use of materials from this website must always be referenced to TeleTrade as the source of information. Use of the materials on the Internet must be accompanied by a hyperlink to teletrade.org. Automatic import of materials and information from this website is prohibited.
Please contact our PR department if you have any questions or need assistance at firstname.lastname@example.org.