Tag: Stock Market

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Apple $200 billion loss in just a few days – NASDAQ falls

Apple

50 million iPhones sold in China every year

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.

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Why buy U.S. stocks when yields are high?

Cash

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.

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An August U.S. stock market stumble, or more?

Eurozone interest rates

August typically a rocky month

The U.S. stock market has experienced a 5.6% slide for the S&P 500 index over 15 trading sessions through 17th August 2023 and levelling off in the last trading day of that week. 

This is about as bad as August typically gets, as August is a rocky month with low volume and high volatility. Some of the reasons for the pullback include the rise in the 10-year Treasury yield, the strengthening of the U.S. dollar, and the signs of a slowing Chinese economy.

Pullback temporary for August?

However, some analysts argue that the pullback will likely prove to be temporary and not turn into a serious market rout. It has been suggested that the bull run isn’t quite over just yet, and that a 10% ‘pullback’ was on the cards.

Analysts also suggest that the rise in yields would need to threaten a serious shift or there would need to be an additional shock to cause a larger selloff. 

NASDAQ

NASDAQ drops some 7% in one month from 19th July – 18th August 2023

However, some suggest that the market is showing signs of stability, as the speed of the surge in the 10-year yield often occurs near the end of a selling cycle for equities. Investors should watch for indicators such as oil prices, wage pressures, and inflation expectations to gauge the market sentiment.

The S&P 500 and the Dow levelled off the week at the close of trading Friday 18th August 2023.

The NASDAQ did score its best first half of the trading year since 1983 January to June 2023 so a pullback was likely to happen.

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Buffet Indicator & U.S. Stock Market

Wise Owl

The Buffet Indicator is a valuation multiple used to assess how expensive or cheap the aggregate stock market is at a given point in time. It was proposed by investor Warren Buffett in 2001, who called it ‘probably the best single measure of where valuations stand at any given moment‘ . It compares the total value of all publicly traded securities in the U.S. to the U.S. GDP .

The current value of the Buffet Indicator is 181%, (July 2023) – which suggests that the U.S. stock market is reportedly worth $48.37 trillion, while the U.S. GDP is $26.74 trillion. 

This ratio is 50.50% above the historical trend line, suggesting that the stock market is overvalued relative to GDP. Buffett warned that if the ratio approaches 200%, ‘you are playing with fire‘.

Buffett Indicator: $48.85T ÷ $26.91T = 182%

Does it Matter?

The Buffett Indicator expresses the value of the U.S. stock market in terms of the size of the U.S. economy. If the stock market value is growing much faster than the actual economy, then it may be in a bubble.

Buffet Indicator Movement Above and Below Trend Line