Unless you have been on a deserted island with no form of communication, you would know that there is a lot of scare mongering around the possibility of another stock market crash.
Some people call it “terrible October” while others refer to it as “red October”, but any way you look at it, Oct. 2018 has continued to live up to its reputation as one of the most volatile months in the stock market.
Oct. has had a long reputation of being a down month in the market given that previous significant crashes have occurred in this month including the great crash of 1929 (black Tuesday) and black Monday in 1987.
To this day, we continue to be reminded of these crashes, which is why people are so wary when Oct. rolls around. But should we be concerned or is the current bearishness just the market being normal?
So far Oct. has produced a new all-time high on the Dow with the S&P having an all-time high in Sept. Charles Dow, founder of the Dow Jones Index, said that for crashes to occur we need to see rampant speculation in the market with hordes of inexperienced investors jumping into anything that is moving at increasingly higher rates.
We also need to see record levels of borrowing to invest and investors moving into mutual funds.
Whilst consumer debt is up, I believe it is more a sign of a good economy and not rampant speculation from individuals borrowing to get into the stock market or to invest in mutual funds.
If we consider the new inflows into mutual funds, the levels have decreased over the past couple of years.
Looking at the market from a technical perspective, we have more than 200 years of market data that proves the stock market has cycles of 80 to 90 years, with the last major cycle low occurring in March 2008, which is also known as the GFC low.
Prior to this, the major lows occurred in 1932 (the 1929 crash), 1842 and 1762. Out of the 1932 low, where the Dow had fallen 90 percent in price between 1929 and 1932, the Dow rose for 56 months and 382 percent in price before falling 50 percent into a low in March 1938.
During this time, we first experienced a depression and then the 1937 recession, which caused the fall into the low in 1938. The next major fall for the Dow did not occur until the 1970’s, where it fell just over 30 percent.
The move out of the 90 year low that occurred in 2008 has been quite different to the move up from the 1932 low in that we have seen the market rise 115 months and 316 percent, so the rise has been steadier rather than the euphoria experienced in 1932.
We have also not seen a depression, and a short-lived recessionary environment. Once the dust settled after the GFC, the economy started improving to now being strong and indicating that a continued rise in the market is likely sustainable.
Given that we are a mere ten years on from the last 90 year low and the next one is not due until the end of this century, right now I believe we are seeing a normal market adjustment to the current longer-term bull market.
Therefore, my expectation is that any fall on the Dow will be in the vicinity of 15 to 25 percent from its all-time high with support between 22,000 and 21,000 points.
We also need to be cognizant of the fact that for a market to crash to occur we need to see fear and panic, which is fueled by widespread concerns over leveraging by consumers and as previously mentioned, we have not seen this in the stock market, but what about leveraging in the housing market, which was the major cause of the GFC.
While there is some justification for concern in the housing market, it is more around availability given that not enough new housing is being built to handle the growth in the population.
Most of you will remember all the talk in 2007 was about dubious mortgages and lending practices and at the time interest rates were over 3.5 per cent, well above today’s level of 2.25 percent. So, in summary we are not seeing large scale stress in lending for housing.
I have often said that if the majority are suggesting that a crash is imminent, then the market will not crash.
This is because those who are likely to panic would have already sold out and the big end of town would have battened down the hatches and adjusted their portfolios.
The process of protecting portfolios from downside risk has the effect of slowing the market as the re-weighting of portfolios occur, and while over the past weeks we could say there has been signs of this, it has not been widespread over many months, which indicates that the big end of town are not too worried.
Investors are known for following the herd and making reactive decisions, rather than being proactive, and it is well known that the herd get it wrong most of the time when it need not be the case.
FAANGs Lose Over $135B Overnight
The stock market was in a sea of red yesterday. The broader markets witnessed yet another correction. Stocks such as Facebook [FB], Apple [AAPL], Amazon [AMZN], Netflix [NFLX] and Google [GOOG], also known as FAANGs led the sell-off yesterday.
FAANGs lost over $135B in market value overnight. Analysts have raised concerns over Apple’s iPhone unit shipments. Several of them have cut iPhone shipment estimates and this has driven Apple shares lower.
Apple’s market cap has fallen from a high $1.1T to its current value of $882B. During its last earnings call, Apple had also stated that it will no longer provide data for device sales further adding fuel to fire.
Facebook trades at a two-year low
Facebook shares continue to burn investor money. Shares are down 13% this month and 20% since Oct. 2018. Facebook shares have impacted after an investigative report by New York Times accused the former of promoting anti-Semitic conspiracy theories.
Amazon shares fell declined over 5% yesterday. The stock faced the wrath of investors as it missed revenue forecasts last month. Netflix, on the other hand, has slumped over the last few months as there are concerns over the company’s international expansion efforts.
Have FAANG’s bottomed out?
FAANGs drove the markets for several years and generated spectacular returns for investors. A focus on developing innovative products and services have ensured market leadership for FAANGs.
However, since Oct. 18, these shares have declined significantly. FAANGs have lost a whopping $700B in market cap over the last 50 days. Does this mean that FAANGs have bottomed out and are trading at attractive valuations?
It’s too early to tell. We have seen that concerns over iPhone device sales, Facebook controversies, and decelerating growth for Amazon and Netflix have weighed in on stocks. Investors are now paying attention to fundamentals in an uncertain macro environment driven by rising interest rates and the trade wars between China and the United States.
Does this mean that the party is over? Certainly not! These companies are leaders in innovation and are expected to launch products and services that will help them maintain revenue growth in the near future.
Analysts though are still bullish on FAANGs. They have a 12-month target price of $233.47 for Apple, implying an upside potential of 26%. Similarly, shares of Facebook, Amazon, Netflix, and Google are trading 50%, 41%, 48%, and 32% respectively below their target price estimates.
3 Ways To Invest From Your Smartphone For Under $5
The numbers say 80% of Millennials don’t invest in stocks.
Reason? Half say they don’t have money, one-third says it’s for “old white men,” another third says they don’t know how.
In addition to that, there’s demographic gap. “The average age of a financial advisor is 55,”Douglas Boneparth, a New York City-based financial planner last year. “There are more financial advisors over the age of 70 than there are under 30.”
Despite these beliefs, you don’t really need much money, nor experience, to get started. (Just look at our fearless co-founder Odunayo Eweniyi and what she’s pulled off here…)
Be that as it may, here are three ways to get started for $5 or less.
What: A micro-investment app (iOS and Android) with over 30 ETFs according to industry, sector and risk tolerance.
How it works: Download the app and choose your investment.
Minimum investment: $5
Cost: Fees range from $1 a month for accounts under $5,000 to 0.25% a year.
“We help people who don’t have a lot save money on a weekly basis,” CEO and co-founder Brandon Krieg said in one interview. “Stashers look like America, they look like people you meet every day: they are nurses and teachers and Uber and Lyft drivers.”
What: iOS and Android app.
How it works: Download the app and choose one of six index funds. When you buy, say a cup of coffee for $1.75, it rounds up the change to $2 and deposits the difference.
Minimum investment: $5
Cost: Just like Stash, fees range from $1 a month for accounts under $5,000 to 0.25% a year.
“We’re not trying to preach austerity to the client, because that’s a bummer,” CMO Manning Field says. “Some people will say, ‘Don’t have the cup of coffee.’ We’ll tell you to have the cup of coffee and invest along the way.”
What: A commission-free investment app (iOS and Android).
How it works: Download and start buying stocks.
Minimum investment: Whatever stock you want to buy.
And by the way, if you want to get a fast start on real estate, here’s Forbes’ list of nine REITs with yields between 8% and 10%.
Analyst: ‘Bitcoin Just Collapsed Like A House Of Cards…’
Oh, how the mighty have fallen.
Ever since their mighty peak back in December, Bitcoin has seen a consistent plunge all year long, briefly dropping under $5k a coin today.
“Bitcoin collapsed like a house of cards on Monday,” Lukman Otunuga, research analyst at FXTM, wrote Business Insider in an email.
In fact, today’s drop continues a filthy week for Bitcoin, which has now dropped to a low not seen since December, right before the wicked explosion in prices that had Bitcoin as high as $20k per coin.
Once that happened, Bitcoin basically went mainstream, with “Blockchain” and “cryptocurrency” becoming words du jour. And once that happened, it basically created a frenzy around cryptos.
Just peep this. It’s not even a hockey chart, it’s just insanity.
Aaaaaand, here’s another showing the raucous trading activity back in December 2017.
All in all, Bitcoin lost 12% of its value in the past week and nearly 20% in the last three months.
For whatever it’s worth, it’s not just Bitcoin that’s taking a beating; other cryptos are getting slammed as well. Both Litecoin ($5.10 per coin) and Ethereum ($156/coin) are down 12%.
So, who else is bullish on crypto?!