Except for a few bright sparks, the subdued and quiet doom in the local market continues- with WAAAX stocks shedding 2.17% despite XJO being in the green by 0.27%. In fact since Friday, WAAAX stocks have lost 3.3%. There appears to be a broad based selling across market darlings -e.g PME down 21% and PNV down 23% since end of October , TNY down 17% since last Friday, APX down almost 5% since last Friday, and so on.
The exuberance around growth stocks seemingly evaporated even though that is the exact opposite experience in Wall Street. Growth stocks generally do well in a positive upward market and value and cheap stocks in a declining market. The logic is if the market stays positive, growth stocks should be entitled (well perhaps not entitled but afforded) a higher PE. Perhaps the local market has now turned its attention on local fortunes- which frankly is rather abysmal. Consumer sentiment locally today dipped and we have heard earlier than we now have a private sector recession. Nothing seems to be working for our Aussie economy, and with the Federal Government sitting pretty on their budget surplus (which is no longer the case after the handout to the farmers) the RBA interest rate cut is not doing the trick. On top of that, the haze that is enveloping much of Sydney and NSW adds to the morose.
The reasons for why this market becomes largely uninvestable are many:
> While risks have subsided somewhat in relation to prospect of a near term global recession - uncertainties continue to linger triggering risk off and risk-on on a daily basis. Yesterday DJIA futures was 100+ points in the red and when a WSJ source indicated some positive movement in the trade talks, it immediately went into the green, but we are still nowhere near understanding if the positive outlook the markets have on the trade deal will actually come into fruition.
> All the good economic news are from the US, hence propping up exuberance and confidence in Wall St. Everywhere else is not in a good state - this includes China which Australia is very much more dependent on, which explains our lacklustre performance. But even in the US, it is the consumer that is holding the economy up - that can also change.
> The US markets have gone complacent - which on a risk-reward basis suggest higher probability that it could turn and especially so if the Dec 15 tariff is turned on (the WSJ source however implied that this will be delayed)
> The XJO and other indices are useless as a guide on how our shares are doing - it provides a misleading picture of what is actually happening and if you use that as guide, then be really careful. There appears to be a disconnect between XJO and Wall St and between XJO and broader class of stocks locally.
> Market behaviour has gone rogue - charts are useless because a stock can show a promising uptrend and suddenly gets sold off without reason- the only reason I can imagine is that there are edgy nerves and when people start selling it snowballed. I have already cautioned earlier that this market seems to be following flow- people chase stocks up and down like a yoyo, and created our own state of volatility
> Difficult to apply logic - stock behaviour bears little correlation to logic. An example I cited before was the relative underperformance of our local gold stocks vis-à-vis foreign gold stocks and an absence of direct comprehensible correlation between our local gold stock price movements against gold price movements (both in USD and AUD).
> Finally, if and when the correction or Big Kahuna comes on Wall St, it would be very difficult to even sell at the prices you only prepared to part with, but if you don't , you may face the excruciating decision of having to even part with it as it goes even much lower. Perhaps people can spare themselves that predicament by being able to sell while the going is good or relatively still good.
So is it TINA (there is no alternative) but to remain invested in equities? We are told it depends on your timeframe horizon for investments. In my opinion, it is best to avoid and avert being caught up in a major downdraft - often we see stocks move up in an escalator but down in a lift - and when the probability stacks against the ability to generate a sustainable return over say 3-5 year time horizon (the key word of course is sustainable, you may be doing well like up 30-40% in a number of smaller cap stocks but those gains can just go quickly as well in an even shorter time- I,e you can lose it all if it is no longer sustainable and your stocks can still be ticking all the boxes but deemed too expensive when the prevailing doom mood in the market has no penchant for dear stocks anymore), it may well not be such a bad idea to move into cash and wait by the sidelines (which is what Dennis Gartman is probably doing right now). And based on the many posts I have made here in this thread, you can gather that the risks are all building up and Buy and Hold participants aren't likely to do well in a protracted adverse economic environment that would be our challenge for the better part of the next decade. Bottom line, even while yields are terribly low, having no yield is still better than losing money.
