Why Is Dow Dropping?
Dow drops more than 600 points last Friday.
These are the reasons that contribute to the fall in broad equity market:
The U.S. economy expanded at a slower-than-projected pace in the fourth quarter:
www.bloomberg.com/amp/news/articles/2018-01-26/u-s-gdp-grows-below-forecast-2-6-on-trade-inventory-drags
Treasury Refunding Announcement Is a Rare Nail-Biter for Traders:
• Everyone with an opinion expects the department to boost the sizes of at least some auctions in February to accommodate a growing budget deficit and the Federal Reserve’s initiative to shrink its balance sheet by allowing some holdings to mature.
• It may deepen a selloff that’s driven 10-year yields to the highest since 2014
www.bloomberg.com/amp/news/articles/2018-01-30/treasury-refunding-announcement-is-a-rare-nail-biter-for-traders
Job growth up 200,000 in January, better than expectations, and wages up
• This means that company cannot hire new staff without increasing salary.
• This may signal that economy is overheating.
www.cnbc.com/amp/2018/02/02/nonfarm-payrolls-jan-2018.html
Inflows into equities had surged for the past few weeks:
• In the latest week, investors poured $23.8bn into equity funds, taking the year-to-date total to more than $40bn, according to estimates from fundtracker EPFR Global. That is on par with the more than $40bn inflow for the same period five years ago.
• This may indicates that equity market is overly bullish.
www.cnbc.com/amp/2018/01/19/fear-of-missing-out-peaks-as-mutual-fund-and-etfs-flows-hit-record.html
*But not all are gloom and doom*
In terms of sales, more companies (80%) are reporting actual sales above estimates compared to the five-year average:
https://www.google.com.sg/amp/s/insight.factset.com/high-number-of-sp-500-tech-sector-companies-issuing-positive-eps-guidance-in-q4%3fhs_amp=true
Companies reported good results last quarter:
• Alibaba revenue is up 56%.
• Alphabet revenue is up 22%
• Apple revenue is up 13%
• Facebook revenue is up 47%
*Conclusion:*
Fed is raising interest rate to prevent economy from overheated.
• If the Fed's contractionary policy is overdone, this may lead to a recession. And equity market falling further.
• If the Fed's contractionary policy is not overdone, economy is not overheated, this will be healthy for equity market.
These are the reasons that contribute to the fall in broad equity market:
The U.S. economy expanded at a slower-than-projected pace in the fourth quarter:
www.bloomberg.com/amp/news/articles/2018-01-26/u-s-gdp-grows-below-forecast-2-6-on-trade-inventory-drags
Treasury Refunding Announcement Is a Rare Nail-Biter for Traders:
• Everyone with an opinion expects the department to boost the sizes of at least some auctions in February to accommodate a growing budget deficit and the Federal Reserve’s initiative to shrink its balance sheet by allowing some holdings to mature.
• It may deepen a selloff that’s driven 10-year yields to the highest since 2014
www.bloomberg.com/amp/news/articles/2018-01-30/treasury-refunding-announcement-is-a-rare-nail-biter-for-traders
Job growth up 200,000 in January, better than expectations, and wages up
• This means that company cannot hire new staff without increasing salary.
• This may signal that economy is overheating.
www.cnbc.com/amp/2018/02/02/nonfarm-payrolls-jan-2018.html
Inflows into equities had surged for the past few weeks:
• In the latest week, investors poured $23.8bn into equity funds, taking the year-to-date total to more than $40bn, according to estimates from fundtracker EPFR Global. That is on par with the more than $40bn inflow for the same period five years ago.
• This may indicates that equity market is overly bullish.
www.cnbc.com/amp/2018/01/19/fear-of-missing-out-peaks-as-mutual-fund-and-etfs-flows-hit-record.html
*But not all are gloom and doom*
In terms of sales, more companies (80%) are reporting actual sales above estimates compared to the five-year average:
https://www.google.com.sg/amp/s/insight.factset.com/high-number-of-sp-500-tech-sector-companies-issuing-positive-eps-guidance-in-q4%3fhs_amp=true
Companies reported good results last quarter:
• Alibaba revenue is up 56%.
• Alphabet revenue is up 22%
• Apple revenue is up 13%
• Facebook revenue is up 47%
*Conclusion:*
Fed is raising interest rate to prevent economy from overheated.
• If the Fed's contractionary policy is overdone, this may lead to a recession. And equity market falling further.
• If the Fed's contractionary policy is not overdone, economy is not overheated, this will be healthy for equity market.
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