Last month we talked about the possibility of an upcoming Tech Bubble 2.0.
In today’s email we will look at the market so far in September 2020, what we could expect as we approach the upcoming US Election in November, just 2 months away and options for managing your investment risk moving forward.
The big news is that for the first time in months, the market showed some significant signs of cracking.
Monday August 31st saw tech stock splits from Apple and Tesla.
The thinking behind splitting the stocks is to provide during boom times a more attractive share price for buyers not wanting to buy stock fractions. As quoted from the Aug 31 article from MarketPlace:
“On Monday, Apple shares rose by more than 3% to about $129 each, while Tesla shares rose by more than 12% to about $498 each.
Companies sometimes split their stock when share prices rise, which is what we’re seeing with Apple and Tesla, according to Philip Bond, a professor of finance and business economics at the University of Washington.
Since shares are less expensive after a stock split, that could attract more investors.
That’s something that typically happens during good economic times, not bad ones, like we’re seeing now.
“[But] the stock market is certainly not the economy,” Bond said, noting that the market has been especially divorced from the economy for the past six months.”
Then, by last Thursday, there were substantial drops in some of those techs, all the while holding valuations many times over numerous national economies.
As quoted from this Vice article from September 4, 2020:
“Yesterday, Apple, which saw a strong surge after its Monday morning stock split, lost $180 billion in a single day. As Barron’s noted, this is the most money that any company in history has lost in one day, which is a gobsmacking fact on its own. Now, consider this: even after losing the most money in one day ever, Apple still had a valuation well above $2 trillion, a truly unfathomable amount of money. And despite that massive loss, the company’s stock was still up 65 percent at market close from January 2020 and up 127 percent from that time last year.”
This reinforces the belief by some that tech stocks in general are currently overinflated. To learn more what the analysts at Barrons think of the matter, click on their article from Sept 5th.
All said and done, the first week of September 2020 saw the market in general fall, with day drops not seen since June.
From last Thursday’s Yahoo Finance article:
“The Dow slid more than 800 points as of market close. The S&P 500 sank 3.5% for its worst one-day drop since mid-June, and the Nasdaq sank nearly 5% to underperform against peer major indices. Big tech shares including Amazon (AMZN), Apple (AAPL), Microsoft (MSFT) and Facebook (FB) each sold off after posting steep run-ups for the year to date.
While there was no immediate trigger, the session’s moves represented a stark reversal from the bullish tone seen at the beginning of this week.
The selloff “could very well be the start of the inevitable Nasdaq correction, but no one has any way of knowing that,” noted David Bahnsen, chief investment officer, California-based The Bahnsen Group. “So far, the move downward is rather hum-drum and immaterial.”
He added that a pullback was “understandable” given that “The Nasdaq has advanced violently since March and many names are at absurd valuations.”
Warnings signs that the market may imminently crash are showing via the VIX Volatility Gauge.
In this article from CNN from September 3rd titled “The stock market is flashing a warning sign”, the author discusses how the VIX Volatility Gauge is showing patterns similar to those in 2000.
“Normally, the VIX (VIX) is muted when US stocks are at record highs. But some market analysts grew concerned in recent days because the VIX kept rising — even as the S&P 500 made new highs.
In fact, the VIX hit its highest level ever at an all-time high for the S&P 500, according to Bespoke Investment Group and Goldman Sachs. The previous high was set in March 2000 during the dot-com bubble.
“It is a significant red flag,” Daryl Jones, director of research at Hedgeye Risk Management, told CNN Business. “The market is at a very risky point. It heightens the risk of a market crash.”
Even without a potential crash, Septembers’ are usually the slow month of the year. However, coupled with election uncertainty October could be slow as well.
In CCN’s article from September 4, the author outlines how this month is most likely going to be worse than your average slow September, and that because of the upcoming US Election, investment stalling could extend into November. As quoted:
- A cyclical pattern in equities markets suggests a stock market crash is on the horizon.
- The present is alarmingly similar to that of 1986 and 2000 when the S&P 500 fell 8.5% and 5.4% in September after a bullish August.
- The professionals managing big institutional money are taking shelter for a September market crash.
Diversify your portfolio moving ahead.
- Evaluate your risk tolerance
- Think long term and stay the course
- Consider dollar cost averaging
“Although we are experiencing a growth spurt, with the world still deep in the COVID-19 trenches and without a vaccine, there’s no telling what will happen with the stock market. The only thing we do know is the market will always experience turbulence, and historically has always recovered. Stick to these basic fundamentals of investing and your ride will be less bumpy.”
2 viable alternatives to stocks for 2021: Property and Private Equity
Real Estate is not suffering, with trends showing a positive forecast moving ahead.
We’re nearing the final quarter of 2020, and as investors we are faced with several uncomfortable questions as well as some viable solutions.
At BAI Capital our investment approach is to be watchful, to diversify and stay balanced, and to look for and invest in the most secure options.
Keeping track of your investment outlook can be a headache – but does it have to be?
If you don’t have risk managed investments in your portfolio, it’s time you called BAI Capital to find out how you can increase your capital- with less stress…