It looks like things are taking a U-Turn as far as US stocks are concerned. Moreover, it is being said that the upcoming ‘November 20 down draft’ might be the biggest downer for the markets in US.
While previously there was ‘some’ hope for the US economy and stocks, it now looks like things are not going to go in a ‘positive direction’ for now.
Today, the 550-point plunge in Dow Jones Industrial Average is one of the biggest meltdown of the market in 2018. In fact, in terms of valuation, the market now ranks worst as compared to the last many decades.
Based on the upcoming 12 months of earnings, price to earnings multiple of S&P 500 Index, has reduced by 17% in 2018. This is the 3rd biggest decline in its valuation since 1991.
The biggest valuation drop was in 2002, when corporate profits and the economy were rebounding from the Internet bust.
Moreover, at the moment, the S&P 500 is trading at 15.4 times compared to what these companies were expected to earn, per share, in the next 4 quarters. This is an 18.7% drop from the start of the year.
Stock prices are up and higher since Trump was elected as the President.
Also in the market, those elements that lead to a higher stock market valuation are also disappearing. Costs will be higher because of strong labor markets and tariffs. It will also reduce corporate profit margins. Moreover, interest rates are also rising and growth is slowing down.
Many things are weighing on the US market at the moment. There are many problems in the US market as well that are causing problems on many fronts. For instance, the US-China trade spat is the biggest concern weighing on the global economy at the moment.
In other news, hedge funds are now suffering their worst in almost 3 years in October. They are now down for the year, in fact they are at their lowest.
In October, hedge funds were their worst and performed their worst since January 2016. Moreover, hedge funds lost about 2.35% on average in October whereas investors withdrew $4.6 billion of hedge fund capital during the 3rd quarter of the year. Moreover, according to recent reports, hedge funds specializing in equity strategies are performing their worst and have lost about 3.3% in October.
According to Amy Bensted, head of hedge funds at Preqin, hedge funds are underperforming and have been severely impacted by the sell off, which has caused trade to escalate greatly. Moreover, it has also caused certain policy uncertainties and political and monetary problems as well.
It is clear that the US economy is struggling and many problems are contributing to its slowdown. For instance, the US-China trade spat is one of the biggest problems weighing down on the economy and will continue to weigh down on the market. Stocks will recline and other problems will prevail in the economy if things do not sort themselves out.
At the moment, it looks like things are going to continue to stay low and all predictions are suggestive of the fact that the markets might not improve in the long or short run both.