Why the decline of U.S. stocks will continue in 2019

Apple is slowing demand for its products. The only Corporation with the capitalization at the time of issue was $1 trillion, has presented good results for the third quarter. However, it alarmed the market, saying that more will not be noted in reporting the number of sold iPhone, iPad and iMac. Two weeks after the news one of the suppliers Apple has announced that its largest partner, significantly reduced the volume of orders. However, specific titles that customer has not sounded. However, this message is a natural Apple shares continued to fall in price.

On 25 October the company issued statements, which were once again recorded a tremendous growth of financial indicators. None the less quotes Amazon on the background of this release fell 10%, as the Corporation significantly downgraded in the fourth quarter. In the result, the upper bound of the range of revenue online store were $1.2 billion below market expectations. By 21 November, the stock fell 23%, but compared with the level at the beginning of the year, they are still in the black for 28%..

The company lost in October more than $200 billion of market capitalization, which seems quite honored. The apparent prerequisites to ensure that the company receiving more than 80% of the proceeds from the sale of phones, tablets and computers, refused to provide complete information on sales volumes of these products, is not visible. Either the Corporation expects to reduce the margins, or on demand in General.

Facebook continues to experience problems with management, losing the trust of its users and investors, and regularly find themselves at the center of scandals. In March of this year it became known about granting Cambridge Analytica confidential information of millions of users the largest social network in the world. Report for July recorded a slower growth of sales, the company lowered forecasts for the end of the year, and its stock plummeted by 25%.

In November around Facebook another scandal erupted with charges of concealing information about Russia’s intervention in the American elections. The founder of social network mark Zuckerberg has accused the managing Director of the company Sheryl Sandberg, at the same time stating that he hopes to work as a team with her for the next few decades. To date, the market capitalization of Facebook fell by more than $250 billion since the beginning of the year. Obviously, for the return of optimistic investor sentiment towards the company needs a change in its senior management.

The effect of ETF

Most investors refuse to buy individual securities, preferring various exchange traded funds (ETF), traded on the exchange just like any stock. ETF investing the proceeds from the sale of their shares of the funds in certain assets.

For example, a Fund with the symbol QQQ invests in the stocks in the Nasdaq 100 index, which on paper Apple, Amazon and Facebook accounts for 37% of capitalization. Due to the fact that the proportion of these shares in the calculation of the base index (and portfolio) are so high and their dynamics is negative, investors begin to sell the QQQ and the Fund in proportion to reduce their positions in these securities. But this ETF includes shares 97 more companies, and they also have to eliminate in order to preserve the structure of the Fund. That is why most of the stock falls, when the main paper, members of the large ETFs, show a negative trend.

Thus, a fall, for example, shares of the software producers may be due to the fact that some ETF rebalanced their portfolios. Also investors who lose their already depreciating the stock, and sell assets that have not yet had time to collapse in price to buy other paper cheaper or exit these positions entirely. For this reason participants of the market with broad portfolio diversification were bound to feel the autumn correction.

From the point of view of technical analysis, the current situation does not look too favorable. A large liquid stocks fell below the 200-day moving averages and continue to fall, additional levels of support are not observed. A psychologically significant level not worked for traders hungry for positive reversal of the stock price. Amazon shares twice easily broke through the level of $1500, paper Apple has gone much below $200.

Interest rates and trade wars

In addition, for the fed, the US has developed a complex and contradictory situation. The predicted probability of the next increase of the base interest rate at the December meeting of the Federal open market Committee is 78%, which is understandable.

The main reference point for decisions of the American regulator is the economy of the country as a whole and not the state of its stock market. Inflation is now 0.2 percentage points above the target fed established at the level of 2.2%. Unemployment remains at a minimum for 49 years and is 3.7%. Wages are rising, the company actively recruited new employees, corporate income is at historic highs. The idea is that the interest rate can be raised.

On the other hand, the index for property developers dropped by more than 30% over the last year. The number of applications for construction continues to shrink. While the fed in December is actually no choice: the policy may cause a negative reaction of the stock market, not to encourage him, as logic dictates.

The exchange has only recently recovered from the subprime mortgage crisis of 2008 and can be regarded lowering interest rates by the fed as a concern of the regulator about the real estate sector. And rising rates are traditionally perceived the stock market negatively. In General, no matter what I do the fed, the rise of prices, his decision will not cause. However, more likely the interest rate will be increased.

Another eternal theme is import duties and the outcome of the trade dispute between the US and China. Donald trump continues to stand its ground, and the Chinese government is not that committed to compromise. From time to time there are news about new arrangements or means of achieving them, and just immediately come out of denial.

In my opinion, to trump the import duty is not a means to achieve a fair and balanced exchange of goods and the path to higher inflation. Any increase in tariffs raises prices, so that will have to pay consumers.

The Corporation will significantly increase revenue and net income will stagnate. There is nothing to worry. Perhaps in the future, import tariffs canceled, but the prices tend to rise, while they fall much less frequently. What is now perceived as an inconvenience in the future may turn into a positive factor. Inflation devalues money, and for the United States as a country with a debt over $20 trillion is not the worst solution.

So, the main factors that caused the correction in the stock market indicated. But the fall affected all of the shares, so it is important to remember about diversification of portfolios to minimize risks. Correction is often perceived as a time of selection of securities for purchase. Which one to prefer – lost part of the cost or able to resist the wave of decline – everyone decides for himself. However, market itself as such, it is time to transform. The reduction of the importance of the IT sector will benefit, because if the three companies is the third largest of the indexes, the risks to the overall market increase significantly.

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