Trade war, the fed and the US debt
The main reason for the falling markets analysts described as profit taking by investors before the new season of corporate earnings reports, which kicks off this Friday. Market participants fear that the increased risk of trade wars between the US, China and Europe could badly affect the financial performance of the American and Asian companies for the last quarter, says Deputy General Director for National investment management company Andrew Vallejo-Roman.
As noted by the analyst of the company “System Capital” Nikita Yemelyans, on Wednesday, the leadership of the two major companies — the owner of luxury brand Louis Vuitton LVMH and seller of goods for business Fastenal — warned about this probability.
Oil poured into the fire, and robotic trading system, which began to sell securities, causing the market panic. Most of the American market “Packed” in the index funds (ETF), and when the robots start sales, it has not for individual companies and for whole sectors. “So yesterday “sold” it is the technology sector — the Nasdaq indexes and S&P 500. The largest American IT companies are mostly oriented to work with China, with whom he waged a trade war,” explains Vallejo-Roman.
The second reason for the collapse was the tightening of monetary policy of the Federal reserve system (the fed), agree experts interviewed by Forbes. At the last meeting, which was held on September 26, the fed raised the rate by 25 basis points to 2-2. 25% per annum. According to the statements of the head of the Federal reserve, monetary policy tightening will continue. The likelihood is that in December the fed will once again raise interest rates, the market is estimated at 74%.
It is remarkable that the President of the United States Donald trump in an interview with Fox News on Wednesday said that the blame for the sale on the stock market is not a trade war, but the fed’s actions. According to trump, blame the hard policy of the Central Bank to raise interest rates. “The fed has gone crazy,” — said the American President.
Trump partly right in their claims, says the head of the UK “Sputnik — capital management” Alexander Losev. The tightening of monetary policy, the fed makes funding more expensive for American companies that may have a negative impact on their business and future profits.
“The average dividend yield of the stocks in the Dow Jones and S&P 500 this year was 1.99%, which is markedly lower than the current yield on short-risk-free Treasury bills and notes of the U.S. Treasury, says Losev. Now the annual yield on U.S. government securities is 2.65%, and when risk-free rate close to 3%, the reasons to keep the money in the stock will be even less.”
Negative impact on stock markets and has had a major auction of U.S. debt, which prompted investors to reduce positions in the stock and to move the released funds in bonds of the U.S. Treasury, says the head of Department of trading operations IK “freedom Finance” Igor Kleshnev.
This week, the U.S. Treasury offers to the market a record $230 billion on Tuesday, the Department placed securities by $156 billion on Wednesday, $59 billion on October 11 last auction will be offered bonds worth $15 billion.
What to do to investors
A further fall in the equity markets is unlikely: reporting companies should be not worse than expected, because trade war unlikely to have had a strong impact on them, says Andrew Vallejo-Roman.
“We are not expecting a “blockage” on the U.S. stock market. Fundamentally the American economy is doing well. GDP growth in the second quarter reached a record of 4.2%, unemployment is at a low level of 3.9%. In the fourth quarter economic activity will remain high,” adds head of investment strategies “BCS” Yuri Sorkin.
The American authorities don’t need a collapse before the elections in November, but the long-term trend will be that stocks will continue to decline, therefore, high volatility will be the U.S. stock market commonplace during periods of macroeconomic statistics and reports, forecasts Alexander Losev.
According to Igor Kleshnev, the American market may SAG a maximum of 1%, then the index will move upwards.
The market decline is a good point to enter the market, agree analysts. “The rebound in this situation should be faster than usual. Now the big players are trying to push the indexes rally before the new year, and you can use this opportunity to build positions in sagging companies,” advises Vallejo-Roman.
Investors should go in the first place, paper of IT companies, says Yuri Sorkin. “Shares of technology companies traditionally show good results at the end of the year. Small correction presents a good buying opportunity,” — says the analyst. In addition, in his opinion, remain attractive sectors in the consumer goods and utilities.
Also worth a look in the securities of companies that showed more moderate dynamics than the broader market, said Igor Kleshnev. So, for example, deserve the attention of consumer companies such as McDonalds, Philip Morris and Starbucks. “Shares of these companies showed less of the market and it is likely that the indices will grow, they will overtake it,” concludes the analyst.