The significant amount of volatility in the stock market is creating an attractive buying opportunity for smart investors who have a keen eye on market activities. Dow Jones industrial average is trading close to the lowest level that it had at the end of fiscal 2018 while the S&P 500 and NASDAQ index have also lost significant value in the final quarter of fiscal 2018.
S&P 500 has hit the 20% threshold for a bear market on Christmas day. Oil companies have reported a huge decline in the past month alone, driven by a huge drop in oil prices. Large industrial companies have also lost billions of dollars amid increasing rifts between largest economies. 3M, General Electric and the rest of industrial companies are down more than 20% from their fiscal 2018 highs. FAANG stocks are among the biggest losers amid their extensive market penetration in the largest economies that are indulged in a trade war.
This article highlights five crucial factors that one can use to play with volatile markets:
Keep an Eye on your Favorite Sector
Along with watching the overall market dynamics of stock markets, investors should also closely gauge the market activities of the specific industry in which they are planning to invest. For instance, you should follow macroeconomic environment combined with company specific reports if you are a growth investor and likes to invest in high growth tech stocks. Companies like Apple, Amazon, and Microsoft have extensive revenue base all around the world. Trade war and economic slowdown always have a significant impact on their performance.
Fed Rate Hike
U.S. Federal Reserves have raised interest rate four times in fiscal 2018. Fed has indicated two more rate hikes for this year. However, the fed could change its decisions based on market dynamics.
Slowing global growth, tightening financial conditions and weakness in rate-sensitive industries could force the Fed to change its rate hike policy in fiscal 2019.
“My view is we shouldn’t take any further action on interest rates until related economic issues are resolved for better or for worse,” Robert Kaplan, the president of the central bank’s Dallas said. “So I would be an advocate of taking no action, for example, in the first couple of quarters of this year.”
Investors who are looking to invest in Banking and other financial stocks should watch the Fed’s policy to predict the stock price movements accurately.
U.S. China Trade Conflict
Trade conflict between the United States and China is among the biggest factor for the stock market crash in the past two months. Higher tariffs on imported products from both countries have significantly impacted the performance of large companies that have a presence in these two countries. Companies like Apple, 3M, General Motor, Ford and Coca-Cola have already started blaming trade war for lower than expected sales in fiscal 2019. Therefore, it’s essential to keep an eye on trade war conflict between largest economies before investing in multinational companies.
Companies are likely to report fiscal 2018 results in the following few weeks. It is essential to check their financial numbers to gauge the challenges and opportunities these companies are facing. Their financial guidance would also help you in understanding the potential price movements. If the majority of companies report solid guidance for fiscal 2019, the market sentiments are imminent to turn towards the formation of the bullish pattern.