Whoops…something is getting tense… spread between the USD LIBOR and Euribor hit the highest level in a couple of decades. pic.twitter.com/1rjo1hkDSl
— Ronnie Stoeferle (@RonStoeferle) November 21, 2018
“The S&P 500 has more room to fall on the back of the current weak credit market.” t.co/Lag2PfShSo
— Lisa Abramowicz (@lisaabramowicz1) November 20, 2018
DoubleLine Capital CEO Jeffrey Gundlach believes that U.S. equities did not have a “panic low” and that even with the most recent sell-off are still too expensive, according to a Reuters report.The money manager also said investors should avoid investment-grade corporate bonds and focus on preserving their capital.
He told Reuters that he thinks stocks still look “overbought.” Stocks fell to a session low following Gundlach’s comment, with the Dow Jones Industrial Average down more than 600 points.
Gundlach said that corporate bonds are more dangerous now because “triple-B” credit — the rating for debt securities just above “junk” status — has skyrocketed since 2008, from 20 percent of all investment grade credit to approximately 50 percent today, according to Reuters.
As the Nasdaq extends its swoon in Tuesday morning trading, it’s helpful to look at history as guide for such pullbacks. Though the markets are off their lows as of 11 a.m., a historical–as opposed to one-day–focus should be enlightening your investment decisions.
The bursting of the tech bubble in the summer of 2000 is the most useful analog, since the broader stock market’s recent run was driven by large-cap tech names just as it was in the late 1990s and the early part of the year 2000. As shares of these titans–Facebook, Apple, Amazon, Netflix, Alphabet (parent company of Google) and Microsoft–continue their October sell-off in November, it is important to understand the causal factors of the sell-off.
This turnaround has been caused by higher interest rates.
The high-water mark for the Nasdaq 100 SPDR (QQQ) was reached on August 31 at $187.53, and this morning QQQ touched a low of $157.20, a decline of 16% from its recent peak. Observers may point to soft forward guidance from Amazon and Apple during their most recent quarterly earnings calls as the driving factors in this sell-off, but a quick look at the charts shows this move started in September, obviously before results for the period ended September 30 were reported.
As much as I try to avoid them, there are folks in the financial media who would like to blame this move on tariffs or other geopolitical factors, in a patently obvious attempt to politicize apolitical events and blame everything on the current administration. Ignore them; as usual they have no idea what they are talking about.
I had a different perspective in 2000 since I was based in London and following autos, a sector which–as I mentioned in my Forbescolumn yesterday–stubbornly refuses to participate in bubble-growing. So I had an outsider’s view of the tech bubble burst, and I can confirm that there was no one data point that caused that crash. There was no single earnings report, no economic data point, no political action. It just happened.
Trump will need bigger bailouts for this-> pic.twitter.com/AiNYIMqgKp
— Alastair Williamson (@StockBoardAsset) November 21, 2018