Thanksgiving is a time of joy and celebration, normally that is, so far this week it has been the catalyst for another sell-off in global equity prices. Led by technology shares as the NASDAQ index has given up all of this year’s gains. A correction of almost 20%, which is considered bear market territory. All the outperformance of the past year from the tech-heavy index over the S&P 500 has now been wiped out. Nothing new to cause the resurgence of bearish sentiment, mainly a continued concern over US interest rate policy. In contrast, there does seem to be hoped that a trade deal may be reached between America and China.
The retail sector also came under pressure on Tuesday as the market now concerns itself with a possible slowdown in consumer spending. Credit markets are under pressure as the spread between investment and non-investment grade spreads continue to widen.
The three main large-cap US indexes, the S&P 500, Dow Jones and NASDAQ all feel below their 200 day moving averages on Monday. Something those who follow technical analysis will look to a further point of worry. The Vix index so far has shown fewer signs of panic as the index remains below fear levels of a few weeks ago as well as earlier in the year. Equity markets in Europe were impacted by the continued sell-off across the pond.
Perceived wisdom, which is often wrong, held the view, get the midterm elections out of the way and the good times will roll on again. At present, there does not look much in the way of good news.
Non-financial corporate credit has grown by 50% from 2008 as corporations have been replacing equity with debt during a period of the ultra-accommodative monetary policy. This time is coming to an end as corporations will find that trade not quite as attractive as it was. This is evident as share buyback programmes are slowing in the third quarter.
We did write at the start of the week that Theresa May stock could have reached a low point. Mr Rees Mogg has so failed to get his 48 letters to trigger a leadership challenge. One would think if you wanted to trigger this action, one should know you have the support. What does not kill you makes you stronger they say, so far Mrs May continues to weather the Brexit storm.