The stock market is no stranger to volatility, and recent events have left investors grappling with uncertainty.
However, for those who embrace a contrarian mindset, the current wave of pessimism might just be the golden opportunity they’ve been waiting for.
Historically, extreme market pessimism has often preceded significant rebounds. The contrarian philosophy – buying when others are selling – rests on the belief that markets tend to overreact to negative news.
This overreaction creates opportunities for savvy investors to capitalise on undervalued assets.
Recent market turbulence, fueled by concerns over global trade policies and economic slowdowns, has pushed sentiment to new lows. Yet, history suggests that such moments of despair often mark the beginning of recovery.
For instance, during similar periods of heightened pessimism, indices like the S&P 500 have shown remarkable gains in subsequent months.
The last time stock investors were so pessimistic was in October 2023, and then the S&P 500 rose 19% over the next three months
While risks remain, including the potential for prolonged economic challenges, the contrarian approach offers a glimmer of hope. By focusing on long-term fundamentals and resisting the urge to follow the herd, investors may find themselves well-positioned to benefit from the market’s eventual rebound.
In the end, the key lies in patience and perspective. As the saying goes, ‘Fortune favours the bold’ – and in the world of investing, boldness often means going against the grain.
The U.S. stock market experienced a dramatic plunge following President Donald Trump’s announcement of sweeping tariffs, marking one of the most significant market downturns since 2020.
On 3rd April 2025, the Dow Jones Industrial Average plummeted by 1,600 points, a staggering 4% drop, closing at 40,546.
Dow Jones one day chart
The S&P 500 fell by 4.8%, while the tech-heavy Nasdaq Composite suffered a 6% decline, reflecting widespread investor anxiety.
S&P 500 one day chart
Trump’s tariffs, which include a baseline 10% levy on imports from all trading partners and higher rates for specific countries, have sparked fears of a global trade war.
The effective tariff rate for China, for instance, has risen to 54%, raising concerns about supply chain disruptions and inflation. Major industries, including technology, retail, and manufacturing, were hit hard.
Apple shares dropped nearly 10%, while companies like Nike and Nvidia saw significant losses.
Apple one day chart
The market reaction underscores the uncertainty surrounding the economic impact of these tariffs. Analysts warn that the measures could dampen consumer spending, increase inflation, and slow economic growth.
The ripple effects were felt globally, with European and Asian markets also experiencing declines. The Nikkei index declined a further 3%.
Nikkei Index five-day chart
Despite the turmoil, Trump defended the tariffs, likening them to a necessary ‘operation’ for the economy. He expressed confidence that the markets would eventually rebound, emphasising the long-term benefits of reshoring manufacturing and generating federal revenue.
As investors grapple with the implications of these policies, the focus remains on potential retaliatory measures from affected countries and the broader impact on global trade dynamics.
The sharp market sell-off serves as a stark reminder of the delicate balance between protectionist policies and economic stability in an interconnected world.
The coming weeks will be crucial in determining whether these tariffs lead to lasting economic shifts or temporary market volatility.
U.S. companies are experiencing more harm from Trump’s tariffs. He wants manufacturing to come back to America – but after decades of globalization fine tuning – that is no easy task.
Are markets underestimating the impact of the tariffs on inflation?
Are markets pricing in the fact that Trump’s tariff policy will not be fully followed through?
The U.S. would be lucky to see a single rate cut from the Federal Reserve this year – and that will unsettle investors.
The U.S. economy could now only expand by between 1% and 1.5% this year – this would be a significant change in the growth outlook when compared with the International Monetary Fund’s (IMF) projection of 2.7% U.S. growth made earlier this year.
If we get close to 1%, we get close to ‘stall’ speed and then it could just stop – and that will mean recession or worse for the U.S.
As we progress through 2025, it’s evident that the initial excitement surrounding Donald Trump’s election win, artificial intelligence (AI), and cryptocurrency has begun to wane – but for how long?
Investors and the general public seem to be growing more cautious, reflecting a shift in sentiment towards these once highly anticipated topics.
Trump’s tariffs
In the realm of politics, Trump’s influence on the stock market has been notably erratic. His tariff threats and new policies have created uncertainty and volatility, leading investors to react negatively. Trump’s riviera suggestion for the Gaza strip, his interest in Canada and fixation for Greenland ownership have all tilted ‘standard’ political logic.
Recent announcements of additional tariffs on steel and aluminum imports have only heightened concerns, causing stock market fluctuations and dampening investor enthusiasm. The initial optimism that Trump’s policies would bolster the economy has been replaced by a more cautious outlook.
AI
Artificial intelligence, once hailed as the technological revolution of the century, is also experiencing a cooling of enthusiasm. While AI continues to make strides in various industries, the initial hype has given way to a more measured perspective.
Investors are now more wary of the long-term potential and the substantial investments required to develop AI technologies. Companies like DeepSeek, which have claimed cost efficiencies, are causing big tech firms to reevaluate their spending on AI projects, leading to a more tempered approach.
Crypto
Cryptocurrency, too, has seen mixed sentiments. Despite ongoing enthusiasm from dedicated supporters, the market’s volatility and regulatory challenges have tempered the initial excitement.
The dramatic price swings and uncertain regulatory landscape have made investors more cautious. While there are still significant investments and innovations in the crypto space, the euphoria that once surrounded it has subdued.
The excitement around Trump, AI, and cryptocurrency is not as fervent as it once was. The reality of market volatility, regulatory challenges, and the substantial investments required has led to a more cautious and measured approach.
As we move forward, it will be interesting to see how these areas evolve and whether they regain the heightened enthusiasm they once enjoyed.
Howard Marks, a widely respected value investor and co-founder of Oaktree Capital Management, recently issued a memo highlighting several cautionary signs of a potential bubble in the stock market.
Marks, who famously foresaw the dot-com bubble, pointed out that today’s high market valuations could lead to poor returns over the long term or even sharp declines in the near term.
Marks reportedly noted that the S&P 500’s current price-to-earnings (P/E) ratio is around 22, which is near the top of the historical range. He explained that higher P/E ratios have historically led to lower returns in the long run.
Marks also expressed concern about the enthusiasm surrounding new technologies like AI, which has driven up the prices of companies like Nvidia.
Marks emphasized that investors should not be indifferent to today’s market valuations and should be cautious about the potential for a market correction.
He also raised questions about the role of automated buying from passive investors and the presumption that the largest companies will always succeed.
The FTSE 100 index comprises the 100 largest companies by market capitalisation. These companies are typically well-established and financially stable, making them reliable dividend payers.
The average dividend yield for the FTSE 100 is around 3.97%.
Here are ten dividend stocks in the FTSE 100
British American Tobacco (BATS) – Known for its high dividend yield, often exceeding 7%. Not an ethical choice.
Rio Tinto (RIO) – A mining giant with a strong dividend history.
Imperial Brands (IMB) – Another tobacco company with a robust dividend yield. Not an ethical choice.
Legal & General Group (LGEN) – A financial services company with a consistent dividend payout.
GlaxoSmithKline (GSK) – A pharmaceutical company with a reliable dividend.
Vodafone Group (VOD) – A telecommunications company with a solid dividend yield.
HSBC Holdings (HSBA) – One of the largest banking institutions with a strong dividend.
BP (BP) – An oil and gas company known for its high dividend yield.
Unilever (ULVR) – A consumer goods company with a consistent dividend payout.
National Grid (NG) – An energy company with a reliable dividend history.
FTSE 250 Dividend Stocks
The FTSE 250 index includes the next 250 largest companies after the FTSE 100. These mid-cap companies often offer higher growth potential and, in some cases, higher dividend yields. The average dividend yield for the FTSE 250 is around 3.30%.
Here are ten dividend stocks in the FTSE 250
Harbour Energy (HBR) – An oil and gas company with a yield of 7.24%.
Tritax Big Box REIT (BBOX) – A real estate investment trust with a yield of 4.76%.
Investec (INVP) – A financial services company with a yield of 6.21%.
Greencoat UK Wind (UKW) – A renewable energy company with a yield of 7.48%.
IG Group Holdings (IGG) – A financial services company with a yield of 5.02%.
ITV (ITV) – A media company with a yield of 6.43%.
Abrdn (ABDN) – An investment company with a yield of 9.45%.
HICL Infrastructure (HICL) – An infrastructure investment company with a yield of 6.37%.
Direct Line Insurance Group (DLG) – An insurance company with a yield of 3.30%.
Drax Group (DRX) – An energy company with a yield of 3.81%.
Passive dividend income
Dividend stocks in the FTSE 100 and FTSE 250 – a basic overview
Buying dividend stocks can offer several benefits to investors – key advantages are…
Regular Income
Dividend stocks provide a steady stream of income through regular dividend payments. This can be particularly appealing for retirees or those seeking passive income.
Potential for Capital Appreciation
In addition to dividends, these stocks can also appreciate in value over time, offering the potential for capital gains. This dual benefit can enhance overall returns.
Reinvestment Opportunities
Dividends can be reinvested to purchase more shares, a strategy known as dividend reinvestment. This can compound returns over time, significantly boosting the value of your investment.
Lower Volatility
Dividend-paying stocks tend to be less volatile than non-dividend-paying stocks. Companies that pay dividends are often more established and financially stable, which can provide a cushion during market downturns.
Tax Advantages
In many jurisdictions, dividends are taxed at a lower rate than regular income. This can make dividend stocks a tax-efficient investment option.
Inflation Hedge
Dividend growth can help protect against inflation. Companies that consistently increase their dividends can provide a rising income stream that keeps pace with or exceeds inflation.
Signal of Financial Health
A company that pays regular dividends is often seen as financially healthy and confident in its future earnings. This can be a positive signal to investors about the company’s stability and profitability.
Diversification
Including dividend stocks in your portfolio can add diversification. They often belong to various sectors, providing exposure to different parts of the economy.
Compounding Effect
The combination of regular dividends and potential capital gains can create a powerful compounding effect over time, significantly enhancing long-term returns.
Psychological Benefits
Receiving regular dividends can provide psychological comfort, especially during market volatility. Knowing that you are earning income regardless of market conditions can help maintain a long-term investment perspective.
Investing in dividend stocks can be a strategic way to build wealth and generate income. However, it’s important to research and choose companies with a strong track record of dividend payments and financial stability.
Conclusion
Investing in dividend stocks from the FTSE 100 and FTSE 250 can be a strategic way to generate passive income while also benefiting from potential capital gains. These indices offer a diverse range of companies, each with its own strengths and dividend yields, making them attractive options for income-focused investors.
These are NOT recommendations – just observations. Go do your research. Interest rates will/do change quickly – go check. Thanks.
Remember to ALWAYS do your own careful and considered research…
The stock market is often seen as a barometer of economic health, but its relationship with the broader U.S. economy is more nuanced than it might appear.
Although there are links between the two, they do not always correlate. The intricacies of this relationship and its implications for investors and the general public are multifaceted.
The stock market – A snapshot of investor sentiment
The stock market is largely a reflection of investor sentiment and their expectations for future economic performance. When investors feel optimistic, stock prices generally increase. On the other hand, when they are pessimistic, stock prices are likely to decrease. Because the market is driven by sentiment, it can react to factors that don’t immediately affect the real economy, like geopolitical events, interest rate changes, or corporate earnings announcements.
Economic indicators: The real economy
The well-being of the U.S. economy is often assessed using various indicators such as Gross Domestic Product (GDP) growth, unemployment rates, consumer spending, and inflation. These metrics offer a broader perspective on the economic climate. For example, an expanding GDP coupled with low unemployment usually indicates a robust economy, despite any fluctuations in the stock market.
Divergence between the stock market and the economy
Occasionally, the stock market and the economy may move in different directions. For instance, during the COVID-19 pandemic, the stock market swiftly recovered from an initial downturn due to extraordinary fiscal and monetary stimulus measures. In contrast, the wider economy’s recovery was more protracted, marked by persistent high unemployment and substantial disruptions across numerous industries.
Likewise, the stock market might fall even amidst positive economic indicators. This occurs when investors foresee impending difficulties, such as possible increases in interest rates or geopolitical conflicts, that could affect corporate earnings.
Short-term vs. long-term perspectives
The stock market frequently responds to short-term factors and investor behaviours, such as speculation and market sentiment, leading to volatility that may not align with the underlying economic fundamentals. Conversely, economic indicators generally offer a more long-term perspective on the economy’s health.
The broader impact of the stock market
Although the stock market’s performance can influence the economy via wealth effects and corporate investments, it is not the only indicator of economic vitality. The performance of the stock market is significant to many U.S. citizens, especially those with investments through retirement plans.
However, the real economy, as measured by employment, production, and consumption, often has a more direct impact on people’s daily lives.
Conclusion
In conclusion, although the stock market is linked to the U.S. economy, they do not always move in tandem. The stock market reflects investor sentiment and anticipations for the future, yet it may not fully represent the present economic conditions.
Hence, for a thorough assessment of economic health, it is crucial to evaluate various economic indicators in addition to the performance of the stock market.
The P/E ratio of the market is a common measure of valuation. Currently, the P/E ratio is significantly higher than historical averages, indicating that stocks are priced much higher relative to their earnings.
Rapid price increases without corresponding earnings growth
When stock prices rise rapidly without a corresponding increase in earnings, it often signals overvaluation. This has been observed recently, especially with some of the major tech stocks.
Comparison to historical market tops
The current market valuations are almost as high as they were at the peak in January 2022, which was followed by a significant correction.
Buffet valuation metric
Metrics like the Buffett Indicator (market capitalisation to GDP ratio) and Tobin’s Q (market value of assets divided by replacement cost) also suggest that the market is overvalued.
While these indicators point towards overvaluation, it’s important to note that markets can remain overvalued for extended periods, and other factors like strong earnings growth can sustain high valuations for some time
U.S. stock market could be overvalued by as much as 68%
The U.S. stock market, according to some analysts suggests that the current market appears to be overvalued by around 68%.
By comparison, at the peak of the Dot-com bubble, on 24th March 2000, the market was 89.5% overvalued. When the market bottomed out 2.5 years later, it had dropped around 50% from its previous all-time high and was undervalued by nearly 21%.
The fact that the market currently appears overvalued does not necessarily mean it will correct any time soon. The forces pulling the market toward the long-run equilibrium are relatively weak and allow the market to stay over or undervalued for extended periods of time.
From 1954 to 1970, the market stayed continuously overvalued for over some 15 years, and from 1973 until 1987, it stayed undervalued for about 14 years.
The analysis clearly suggests that U.S. stocks are overvalued – but that doesn’t necessarily mean a downturn any time soon – but it will, in time, adjust.
The S&P 500 and Nasdaq Composite reached new closing highs on Tuesday 11th June 2024, propelled by Apple as the tech giant’s stock hit a record itself.
The S&P 500 index climbed to a new high to close at 5375, while the Nasdaq Composite finished the day at 17343. Both indices also hit new intraday highs. However, the Dow Jones Industrial Average fell by around 120 points to close at 38747.
S&P 500 reaches new all-time high on 11th June 2024
S&P 500 reaches new all-time high on 11th June 2024
Nasdaq Composite hits new all-time high on 11th June 2024
Investors seemed to be cashing in on Nvidia, a leader in artificial intelligence, and shifting focus to Apple, which recently introduced new features likely to drive a surge in iPhone upgrades.
Apple’s stock reached a new high during the trading session, its first since December 2023, with around a 7% increase. Nvidia’s stock declined by 0.7% as some profit taking ensued.
Bad economic news appears to have had an interesting impact on the stock market recently.
Traditionally, negative economic data might be anticipated to result in falling stock prices; however, recent trends have diverged from this norm.
News trend
In the past two months, negative economic news has had a paradoxically positive effect on equities. Investors have responded well to poor economic indicators, partly due to the belief that these could lead the Federal Reserve to begin reducing interest rates.
Dollar and the stock market
In recent times, the S&P 500, a large-cap equity index, and the U.S. dollar have exhibited a nearly perfect correlation. As the dollar has seen a gradual decline, the stock market has conversely experienced a rise. Typically, investors flock to the security of cash, and consequently the dollar, in times of uncertainty, yet they also channel investments into stocks upon the arrival of favourable news.
Economic data
Despite the upbeat trend in the stock market, real economic data has frequently fallen short of Wall Street’s predictions. The Citi Economic Surprise Index, a gauge that compares data to expectations, has been on a downward trajectory. This suggests that expectations have been surpassing the actual economic conditions, signalling that the economic situation may not be as favorable as previously thought.
Dilemma for the Fed
The Federal Reserve methodically reviews economic indicators to influence their interest rate decisions. Typically, unfavorable economic reports might prompt the Fed to reduce rates, unless there’s an uptick in inflation. Escalating inflation generally nudges the Fed towards a tighter monetary policy.
Monthly data roll-out
Data concerning the U.S. labour market presented to the Fed and markets may create that ‘pivotal’ moment – it often does – markets move of Fed comments and ‘awaited’ news. Reports detailing job openings, private sector job creation, and the Bureau of Labour Statistics’ nonfarm payrolls will shed light on the economy’s condition.
If job growth remains within the ‘Goldilocks range’ (neither too strong nor too weak), it may preserve the fragile equilibrium where unfavourable economic news has paradoxically favoured stock prices, while preventing excessive gloom.
Conclusion
To summarize, although adverse economic news has lately been advantageous for stock markets, monitoring this precarious balance is crucial. Excessive pessimism could be a harbinger of impending difficulties, despite its current benefits.
Note about Citigroup Economic Surprise Index
The Citigroup Economic Surprise Index is the sum of the difference between the actual value of various economic data and their consensus forecast. If the index is greater than zero, it means that the overall economic performance is generally better than expected, and the S&P 500 has a high probability of strengthening, and vice versa.
The Hindenburg Omen is a technical indicator that signals a higher likelihood of a stock market crash.
It measures the percentage of new 52-week highs and lows against a set reference percentage. The simultaneous occurrence of new highs and lows suggests a statistical anomaly from the norm, potentially foreshadowing a stock market downturn.
The four main criteria for a Hindenburg Omen signal
The daily number of new 52-week highs and 52-week lows in a stock market index must be greater than a threshold amount (typically around 2.2%).
The ratio of 52-week highs to 52-week lows cannot be more than two times.
The stock market index must still be in an uptrend (determined using a 10-week moving average or the 50-day rate of change indicator).
The McClellan Oscillator (MCO), which measures the shift in market sentiment, must be negative.
Once the criteria are satisfied, the Hindenburg Omen remains active for 30 trading days, and any subsequent signals within this time frame should be disregarded.
Confirmation of the Hindenburg Omen occurs if the McClellan Oscillator (MCO) stays negative throughout this period, while a positive MCO invalidates it.
Traders typically employ this indicator alongside other technical analysis methods to determine optimal selling times. However, it’s crucial to remember that the Hindenburg Omen is not infallible and should be used in conjunction with other market factors.
For true cryptocurrency bulls, the most lucrative investments in 2023 were in the stock market.
While Bitcoin rallied over 150% for the year, shares of Coinbase, Marathon Digital, MicroStrategy and the Grayscale Bitcoin Trust, which are all tied closely to the digital currency, did substantially better, rising more than 300% in value. Bitcoin miner Marathon Digital soared some 688%.
Outperform
Not only have these stocks outperformed primary cryptocurrency, but they’ve been among the biggest gainers across the whole U.S. stock market. In the universe of publicly traded U.S. businesses with a market value of at least $5 billion, the four Bitcoin-tied stocks were among the eight best performers, according to analysts.
Boom or bust?
The crypto boom represents a major recovery from 2022, when coin prices plummeted, taking related equities down with them. A year highlighted by hedge fund collapses, crypto lender failures and crippling losses at miners was punctuated in November 2022, when crypto exchange FTX spiralled into bankruptcy, leading to the arrest of founder Sam Bankman-Fried on fraud charges.
A jury in New York convicted Bankman-Fried on seven criminal counts
Bankman-Fried conviction
In 2023, a New York jury convicted Bankman-Fried on seven criminal counts, setting the 31-year-old former billionaire up for a possible long-stretch behind bars. Weeks later, Changpeng Zhao (CZ), founder of crypto exchange Binance, pleaded guilty and stepped down as the company’s CEO as part of a $4.3 billion settlement with the Department of Justice. He faces a possible prison sentence of 18 months or longer.
By the time of Bankman-Fried’s conviction and Zhao’s plea deal, the damage to the broader crypto market had mostly been realised, and investors were looking to the future. One of the biggest drivers for bitcoin this year was an easing of the Federal Reserve’s interest rate hikes, which created a more attractive case for riskier assets, but only marginally.
Bitcoin halving due May 2024 & ETF’s
Prices were also bolstered by the upcoming Bitcoin halving, which takes place every four years and is scheduled for May 2024. In the halving process, the reward for mining is cut in half, capping the supply of bitcoin.
Additional buying was sparked by the potential for a flurry of bitcoin exchange-traded funds popping up in the new year.
Marathon
Among companies closely tied to Bitcoin, the best-performing stock this year was Marathon, a mining firm that just eclipsed that market cap level last week thanks to a 125% surge in December as of Tuesday’s close. On Wednesday, the shares surged another 15%.
Last year at this time, Marathon was hanging on by a thread. The company was in the midst of a quarter that ended with a loss of almost $400 million on sales of just $28.4 million because of tumbling bitcoin prices
Mining
Bitcoin mining is an expensive operation because of the high energy costs required to operate the supercomputers. A drop in bitcoin prices means a sharp reduction in the money producers make selling the coins they mine, even as their energy bills get little relief.
Outside of the mining universe, the best-performing crypto stock in the U.S. this year is Coinbase, which has soared some 386% into 2023 year end.
Coinbase
As the only major publicly traded crypto exchange in the U.S., Coinbase has long been a popular way to buy and trade cryptocurrencies in its home market. But with the struggles at Binance, the largest exchange in the world, Coinbase picked up useful market share during non-U.S. trading hours, according to a report from research firm Kaiko in late November 2023.
Binance is still open for business(Art illustration of a fictitious crypto trading room)
Shortly after Zhao’s plea deal, Coinbase CEO Brian Armstrong reportedly said that the news amounted to ‘a vindication of the long-term strategy that we’ve taken to focus on compliance, make sure we were building a trusted company.’
Coinbase’s revenue and stock price are still way below where they were during the heyday of crypto trading in 2021, when retail investors were jumping into the market to buy all sorts of digital currencies, including gimmicks like Dogecoin.
But the business has stabilized following drastic cost-cutting measures starting last year and extending into early 2023.
Santa rally is a term that refers to the tendency of the stock market to rise in the last week of December and the first two days of January.
This is not a guaranteed or consistent pattern, and it may depend on many and various factors that affect the market performance.
However, the stock market trends in December are historically positive, according to some resources.
When it’s cold outside sometimes the market get hot
The term ‘Santa rally’ refers to the tendency of the stock market to rise in the last week of December and the first two days of January.
Some possible explanations for this phenomenon are tax considerations, increased holiday spending, optimism and goodwill, and institutional investors adjusting their portfolios before the year end.
But it can get cold too
However, the stock market performance in December may vary depending on the economic and political conditions of the year. For example, in 2022, the stock market had its worst year since 2008, and many major indices were negative for December. The coronavirus pandemic, the trade war with China, the Brexit uncertainty, and the U.S. presidential election (2020) and problems that followed that election were some of the factors that contributed to the market volatility and decline.
Therefore, the stock momentum going into December 2023 may depend on how the current issues and events are resolved or at least managed. The market for 2023 and right now is in a general upward trend.
Some of the key factors that may influence the market are geo-political issues, the wars between Ukraine and Russia – Israel and Palestine, inflation rates, interest rates, budgets, corporate earnings, fiscal news, central bank interventions and other brewing world tensions.
Impossible to predict, but we can make an educated guess
It is not possible to predict with certainty how the market will behave at this time of year (or any for that matter), but looking at historical data, technical analysis, fundamentals, stock market movements in general and the overall news pattern – it is possible to make a more ‘informed’ decision.
Warning!
Don’t rely on it though – ‘nothing’ is, absolutely ‘NOTHING‘ is definite in the stock market.
Observing the data available at CME FedWatch the stock market does not seem to expect the Fed to start cutting rates aggressively anytime soon, this opinion is based on the current pricing data of the fed-funds futures market.
According to the CME FedWatch Tool, the probability of a rate cut in the next FOMC meeting on 13th December 2023 is very low. It is likely interest rates will be left unchanged.
The market seems to expect the Fed will hold the current rate of 5.25% until at least March 2024, but will then gradually lower it to 4.75% by December 2024.
The market seems to be more optimistic about the U.S. economic outlook and the Fed’s ability to control inflation. The mood on rates has been buoyed recently with inflation data coming in better than expected.
It is highly likely that the Fed will have to cut rates more aggressively in 2024 and 2025 to stimulate the economy and avoid a potential prolonged recession.
South Korea stocks surged on Monday, 6th November 2023 after the country imposed a ban on short selling, while most Asia-Pacific markets took the lead from a lighter than expected U.S. jobs report that helped reduce interest rate expectations.
Financial decision makers in South Korea said short selling will be banned until the end of June 2024. Short selling is when a trader sells borrowed shares to buy back at a lower price and pocket the difference.
Stocks retreated Friday as a surge in the 10-year Treasury yield prompted broader concerns about the state of the economy.
The Dow Jones Industrial Average (DJIA) is one of the most widely followed stock market indices in the world. It tracks the performance of 30 large U.S. companies from various sectors, such as Boeing, Coca-Cola, Apple and Walmart.
The DJIA is often used as a proxy for the overall health of the U.S. economy and investor sentiment.
Market pressure
Lately, the DJIA has been under pressure as U.S. Treasury yields have climbed to their highest levels in over sixteen years.
Treasury yields are the interest rates that the U.S. government pays to borrow money by issuing bonds. When Treasury yields rise, it means that investors are demanding higher returns to lend money to the government, which reflects their expectations of higher inflation and economic growth.
Treasury yields
Higher Treasury yields can have a negative impact on the stock market for several reasons. Firstly, they increase the borrowing costs for companies and consumers, which can affect spending and profits.
Secondly, they make bonds more attractive as an alternative investment to stocks, which can reduce the demand for equities.
Thirdly, they can signal that the Federal Reserve may tighten its monetary policy sooner than expected, which can also dampen the stock market’s momentum.
The DJIA has fallen by more than 300 points in recent days as Treasury yields climbed above 5%, a level not seen since 2007. The rise in yields was driven by strong economic data, such as the September 2023 consumer price index (CPI), which showed that inflation remained elevated at 3.7% year-over-year. But only 1.7% off the Fed target of 2%.
Dow Johns Industrial Average close 20th September 2023
U.S. 10-year Treasury yield hits 5% for the first time since 2007 – Dow closes down nearly 300 points
The S&P 500 lost 1.26% to 4,224. The Nasdaq dropped 1.53% to 12,984. The Dow Jones Industrial Average lost 287 points, or 0.86%, to end at 33,127.28.
The yield on the benchmark 10-year Treasury crossed 5% for the first time in 16 years on Thursday 19th October 2023, a level that could easily spread through the economy by raising rates on mortgages, credit cards, vehicle loans and more. It retreated slightly from this value on Friday 20th October 2023.
Not to mention, it offers investors an attractive alternative to stocks.
London has regained its status as Europe’s largest stock market from Paris, boosted by rising crude oil prices.
The combined market capitalization of primary listings in London but excluding ETFs and ADRs, is now $2,888.4 billion versus Paris’s $2,887.5 billion, as of 19th October, 2023.
London had lost its position as Europe’s biggest stock market in November 2022, extending a decline that started with Britain’s vote to leave the European Union in 2016.
London market
The London market, which has a large exposure to commodity stocks, such as Shell and BP, has outperformed recently due to the surge in oil prices, which reached a seven-year high this month.
Paris, on the other hand, has been weighed down by the slump in luxury stocks, such as LVMH and Kering, which have been hit by China’s crackdown on consumption and corruption.
The Nikkei 225 index, is a stock market index for the Tokyo Stock Exchange.
The Nikkei 225 reached its all-time high on 29 December 1989, during the peak of the Japanese asset price bubble, when it reached an intra-day high of 38,957.44, before closing at 38,915.87. This was after a decade-long bull run throughout the 1980s, when the index grew sixfold.
Since then, the index has never surpassed this level, and has experienced several periods of decline and stagnation. As of October 4, 2023, the index closed at 30,526.88, down by 2.28% from the previous day and 8389 points off its all-time high.
Dow Jones Industrial Average (Dow) performance on 3rd October 2023.
The Dow fell more than 400 points, turning negative for the year. The main reason for the drop was the surge in U.S. Treasury yields, which reached their highest levels in 16 years.
Higher yields mean higher borrowing costs for businesses and consumers, which could hurt the economic recovery and the housing market.
S&P 500 on 3rd October 2023
Nasdaq on 3rd October 2023
The tech-heavy Nasdaq Composite gained a 0.7% on October 3rd, 2023, as some investors saw an opportunity to buy some of the high-growth stocks that had been under pressure recently.
The stock market has been experiencing some volatility and uncertainty in September and October 2023, as investors fret about inflation, interest rates, and the possibility of a U.S. recession.
Main facts affecting the current stock market
The month of October has produced some severe stock market crashes over the past century, such as the Bank Panic of 1907, the Wall Street Crash of 1929, and Black Monday 1987.
October has also marked the start of several major long-term stock market rallies, such as Black Monday itself and the 2002 nadir of the Nasdaq-100 after the bursting of the dot-com bubble.
The S&P 500 dropped 4.5% in September 2023 and finished the third quarter in the red.
The U.S. Treasury yield curve has been inverted for months – which is a historically strong recession indicator.
The Fed maintained interest rates at the current target range of between 5.25% and 5.5% in September 2023, but signalled that it may need to raise rates again to combat inflation.
The consumer price index gained 3.7% year-over-year in August 2023, down from peak inflation levels of 9.1% in June 2022 but still well above the Fed’s 2% long-term target.
The bond market is currently pricing in an 81.7% chance the Fed will choose not to raise rates again on 1st November 2023.
The Dow Jones Industrial Average was down at 33002, Tuesday 3rd October 2023.
Stocks fell as investors pulled money from equities and moved it to the hot bond market.
International markets also faced significant turmoil, sending mini shockwaves through global financial centres, which reverberated in equities.
The dollar rose to the highest since December and is heading towards the twelfth positive week in a row.
Uncertainty
Uncertainty in the U.S. political system is having a major affect too. Especially with the ousting of the speaker and the real fear of a government shutdown looming large.
The stock market can be very volatile and unpredictable, especially in times of uncertainty and crisis. It seems like investors are reacting to every piece of news, whether it’s good or bad, with fear and panic.
According to some analysts, the main factors that are driving the market turmoil are the rising bond yields, the slowing global growth, the ongoing trade tensions, and the potential fiscal risks. These issues have created a lot of uncertainty and anxiety among market participants, who are looking for signs of stability and direction.
Long-term investing makes sense
Some experts suggest that the best way to deal with the market volatility is to have a long-term perspective, diversify your portfolio, and avoid emotional decisions. They also advise to stay informed, but not to overreact to every headline or rumour.
Remember that the market has gone through many ups and downs in the past and has always recovered over time.
October is a special month in the stock market for several reasons. It is the month when some of the most spectacular market crashes have occurred, such as in 1929 and 1987.
However, it is also a month that has historically performed well on average, with a 0.6% price gain for the Dow Jones Industrial Average from 1928 to 2022.
The month of October also marks the beginning of a seasonal pattern that favours stocks, as the fourth quarter and the winter months tend to see strong rallies. The ‘Santa’ rally may also visit.
Swings
However, October can also be a volatile month, with significant swings in both directions. It is the only month where all major indices have recorded losses of at least 17% (in 1987 and 2008), but also the month where the S&P 500 and the Dow Jones Industrial Average have posted their highest percentage gains of any month (in 1974 and 2022).
Therefore, investors should be prepared for potential turbulence and seek professional advice to navigate the market. Do your research!
RESEARCH! RESEARCH! RESEARCH!
Read-all-about-it, 1987 October stock market crash!
Additionally, October may face some special factors that could affect the market performance this year, such as the ongoing strike action, the rising inflation and interest rates, and the political uncertainty in the U.S. over the debt ceiling and government spending. These factors could create headwinds or even opportunities for different sectors and industries, depending on how they are resolved.
Summary
In summary, October is a month that has a mixed reputation in the stock market, with both risks and rewards. Investors should be aware of the historical trends and the current events that could influence the market direction.
‘How bad can October really get?’ ‘Remember the 1987 crash?’
Apple sells around 50 million iPhones in China annually. A sweeping ban is what investors fear and that spells trouble for Apple.
Apple stock drops after The Wall Street Journal reported a day earlier that Chinese authorities have curbed the use of the iPhone. Apple’s flagship product will no longer be legal to use by some central government officials.
The potential crackdown threatens to dissrupt Apple’s sales as China accounts for about 20% of Apple’s total revenue. Uncertainties about the news prompted investors to retreat from Apple postions, leading to a 6% drop in Apple shares in two days. More than $200bn of market cap was wiped out.
$200 market cap drop
Apple shares fall $200 billion in just days September 2023
The iPhone commeth
Adding to the concern, Apple is just days away from its key event. On the 12th september 2023, the company is expected to officially announce the launch of its newest smartphone – the iPhone 15.
At 4.33%, the 10-year Treasury yield in the U.S. is at its highest in 16 years. That represents a risk-free, long-duration asset with relatively high returns and this is challenging the stock market.
Why should traders invest in stocks that may not return as much, or just slightly more and take unecessary risks, when there is an asset class that guarantees around 4% return or slighlty more?
Cash is king?
Cash is now yielding 5% in the U.S., short term bonds are yielding 5% plus, so equities for the first time in a long time, have actually got some competition.
Typically stocks if they do well, are likely to return more than a risk-free asset, precisely because it isn’t certain stocks will rise. That’s called the equity risk premium, a return that’s supposed to compensate stock investors for the chance that they might lose money. But, as the premium is below 1% now. Historically, it’s been between 2% and 4% – meaning stocks are looking much less attractive than Treasuries.
Harder job for the Fed?
Another potential issue that could crop up with high Treasury yields is that it could make the Federal Reserve’s job tougher. During the recent Jackson Hole gathering, the Fed head has indicated that more interest rate hikes are still high possibility.
But don’t panic just yet… this is likely a pullback phase of a bull market analysts suggest. That is, it’s still too early to be bearish on stocks.
Yardeni Research president Ed Yardeni is reported to have said that the market is ‘going to hang in there’ and ‘a year-end rally will bring the S&P 500 back to something like 4,600‘.
That implied an increase of almost 5% in stocks – while not certain – would give Treasuries a run for their money again.
