The amount of volatility going on in markets over the past week would certainly make anyone nervous. The US does seem pretty jittery, with an overnight sell-off apparently on the back of the first incidence of Ebola virus detected in the US.
The Dow Jones was down 1.4% overnight but as scary as the Ebola virus is, there are still plenty of other reasons to be nervous about US equities.
This morning, Peter listed a multitude of reasons why US equities could be down so much. They include weak European growth, slower than expected growth in Japan, the geopolitical risks of Russia v Ukraine as well as Iraq and ISIS, US construction was less than expected, QE3 is about to end and October is never a good month for equities anyway.
Peter has been saying for a while that a correction is overdue and the collection of all these factors means we might be at the beginning of it.
Switzer Super Report expert from Bell Potter, Charlie Aitken, also points out this morning that “The benchmark US S&P500 index hasn’t experienced a technical correction (-10%) in over 2 years.”
“The correction is well under way in US small cap equities and my theory is it will now spread to US large cap equities. The small cap Russell 2000 Index officially entered technical correction territory last night after “death crossing” two weeks ago. The small cap S&P600 is also now in correction territory.”
You know that we’re slightly more optimistic than Charlie on a lot of things but it’s always important to share his message.
At SSR we’ll be keeping an eye out for US job numbers on Friday night. If they’re good, that could be bad as it could see the market sell off on the belief that interest rate hikes are on their way. Unfortunately, if they’re bad, that’s not good either.
As Peter says: “The Yanks need a Goldilocks number — not too hot, but not too cold.”
If you’re nervous, you can always take Charlie’s advice and sit on the sidelines.
“There’s absolutely nothing wrong with locking in some of the massive capital gains of the FED inspired last few years and moving to the sidelines,” he says.
“In terms of value, I reiterate the only clear value I can see is the US dollar, volatility and Chinese equities.”
So fasten your seat belts for a rocky month – but do try and remember that any rate hike will mean that the Fed is confident the US recovery is sustainable so it won’t be the beginning of the end for US equities.
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