5 signs the stock market's sell-off is just beginning
Reuters/Yuya Shino
President Obama doesn’t know me from Adam, but I am certainly guilty of peddling what he calls “fiction” about the American economy.
I guess he must have missed the stock market’s start this year. The Dow Jones Industrial Average lost over 1,000 points, from 17,591 at the close on December 31 to 16,519 by the end of the week—a loss of over 6% in one week.
That’s more than in any other first week of the year since 1928.
That’s painful, but I expect the losses to get even worse. Here’s why:
Sign #1: Utility Stocks Have Peaked
When I first got into the investment business, I was told that utility stocks were perfect for widows and orphans. Well, if that’s true, a whole bunch of widows and orphans are singing the blues because the Dow Jones Utilities Index peaked in January of 2015 and has trended down since.
Reuters/Yuya Shino
Sign #2: Small-Cap Stocks Have Been Hit Hard
The Value Line, S&P Small Cap Index, S&P Mid Cap Index, and Russell 2000 all peaked in the middle of 2015. The Russell 2000 is down more than 20% from its June high… officially entering a bear market.
Reuters/Yuya Shino
Sign #3: The Transportation Sector Has Plunged
The Dow Jones Transportation index peaked in December 2014 and has trended down since. The Dow Jones Transportation Average is down 24% from December 2014.
Reuters/Yuya Shino
Sign #4: The Average S&P Stock Is Down Over 20%
The S&P 500 is a weighted index, which means that large-cap stocks are more heavily weighted. However, if each stock had equal weighting, the performance of the S&P 500 would look very different. According to Jefferies & Company, the average stock in the S&P 500 is down 20% or more from its 52-week high.
Reuters/Yuya Shino
Sign #5: The Nasdaq Ended 2015 in the Red Without the “FANG” Stocks
The Nasdaq is even more guilty of a large-cap bias. If it weren’t for Facebook, Apple, Netflix, and Google—collectively referred to as the “FANG” stocks—the Nasdaq index would have finished with a loss in 2015. Each of those four stocks was up between 30% and 156% in the last 12 months.
Be Prepared
I could go on, but I’m just a nobody. Though maybe President Obama would listen to Kaushik Basu, head economist of the World Bank: “There are severe fault lines beneath the surface. The global economy, and in particular the emerging economies, could hit a severe road bump.”
Reuters/Yuya Shino
In fact, the World Bank trimmed its global growth forecast for the third straight year, reducing its global GDP growth forecast from +3.3% to +2.9%.
Call me a pessimist, a bear, an idiot, or guilty of peddling fiction… but my personal portfolio and that of my Rational Bear subscribers is prepared for the stock market to not only fall... but profit from falling stock prices.
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