These Five Trends Are Crucial for Stock Market in Fiscal 2019

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.

Source: Tradingview.com

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.

Financial Guidance

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.

 

 

 

Why a U.S. Stock Markets Meltdown in 2018? Here’s How they Could Behave in 2019

Stock markets always move on sentiments regarding the future fundamentals of the economic and business environment. The latest meltdown of the U.S. stock market is a perfect example of this principle. Dow Jones Industrial Average, S&P 500 and the NASDAQ had posted year over year gains for 2016 and 2017; these indices had extended the momentum in fiscal 2018 and hit an all-time high during the third quarter.

Source: Tradingview.com

The markets, however, took a big U-turn in the final quarter. Both the Dow and the S&P 500 ended the year down 5.6% and 6.2%, respectively. This represents the most significant loss for both indices since 2008. NASDAQ, the index that tracks high growth tech and internet stocks, plunged sharply amid significant losses from FAANG (Facebook, Apple, Amazon, Netflix, and Google) stocks.

So what’s Went Wrong? The meltdown of U.S stocks was due to the change of sentiments and the uncertainty in the global economic environment that U.S. president brought amid his ‘America first policy.’ Back to back hundreds of billions of dollars of tariffs on Chinese, Canadian and products from other fellow countries helped in turning the bullish market into bearish one. These countries retaliated with similar tariffs, resulting in a trade war between largest economies.

Source: Tradingview.com

Consequently, traders started selling their positions in companies that were becoming the victim of the trade war. Dow Jones Industrial Average, the index which tracks the performance of largest 30 companies, posted its biggest losses in December 2018.

It’s a Sick Market

Does a market form a bullish or bearish pattern in 2019? Investors are wondering how markets would behave in fiscal 2019 after big price swings in 2018. Currently, the markets are sick. How? After the massive amount of volatility traders all over the world are cautious in making new positions. UBS director of floor operations at the New York Stock Cashin says the markets are currently like a person who had a cardiac event. He or she is careful in the days that follow and need to figure out how far he or she can walk.

Cashin believes that the market hasn’t reached the point where the selling gets to the point of capitulation.

They get close, but they don’t quite get there,” he said. “I’d like to see it kind of purge a little bit, and then I would be far more relaxed to see them go up. But now we’re fighting each crisis every day.” “Continued erosion, selling off and not bouncing is going to make the market feel worse,” Cashin said.

Here’s are the Factors That Would Set the Tone for 2019

Although micro-level factors and the formation of technical patterns on charts could contribute slightly to traders’ sentiments, the price movements in New Year are again correlated to overall market sentiments and the macro level global economic environment.

For instance, all three indices are up slightly since the start of this year. It means that the market has hit the bottom of the selloff. How can we say that the market has hit bottom? The market has hit the bottom of the selloff as the United States, and China agreed on a ceasefire. Presidents of both countries met on the sidelines of G20 summit and announced to not to impose more tariffs on each other in the next three months. The stability in the business environment helped in reversing the bearish trend.

The stock market stability throughout fiscal 2019 would be dependent on the relationship between the United States and China. In addition, the economic environment of the two largest countries could also play setting the tone.

It appears that China is facing economic challenges. Its GDP is falling at a sharp pace amid declining exports and higher tariffs on its products. “China is going to be absolutely the big thing,” said Julian Emanuel, chief equities and derivatives strategist at BTIG. “China cut reserve requirements on Friday to encourage more bank lending, its latest policy move aimed at ending a slowdown.”

U.S. economy has also not been booming. The experts expect the U.S. economy to expand in the range of 2% to 2.5% in the first half of this year. The ISM data for December, which plunged to the lowest level in the last two years, was significantly discouraging.

Julian Emanuel, chief equities and derivatives strategist at BTIG says, “The question is, are we likely to have warnings? Given the economic data that we’ve seen, particularly the slowdown in the new orders component, we probably are likely to get warnings, and the question is, is it baked into stock prices? We think, for the most part, it is.”

Conclusion

The U.S. stock market is in the consolidation state, but investors are cautious about the consequences of a trade war on the financial position of companies. What you need to look for in the market following weeks is the financial guidance from companies. For instance, Apple has recently reduced its revenue guidance for the first quarter amid the challenging economic environment of China. One could easily predict that Apple shares would remain under pressure except the company takes some game-changing steps.

The market could move into a bullish pattern if the companies report stellar earnings for the final quarter of fiscal 2018 along with the positive guidance for 2019. Weak revenue and earnings guidance could also push the market into a bearish trend.