Analysts confident downturn is healthy correction

Stock market falls Photo: Reuters
Stock market falls Photo: Reuters

Stock exchanges worldwide fell yesterday, but investment houses do not believe a bear market is in store.

As in the European stock markets, trading on the Tel Aviv Stock Exchange (TASE) opened today in a negative direction, following yesterday's Wall Street plunge and falls in trading today in Asia. Analysts do not believe that this signals the beginning of a recession or a bear market, and offer other explanations for the downturn in the share indices.

In the US, the S&P 500 Index was down 2.5% yesterday, bringing its losses in the past month to 8.5%. The Dow Jones Index fell 2.4%, completing a 7.5% slide over the past month, while Nasdaq lost 4.4%, its sharpest slide since 2011, and it has now fallen 11% in the past month.

On the TASE today, the Tel Aviv 35 Index and the Tel Aviv 125 Index were both down by around 1.5%, while the Tel Aviv Biomed Index dropped by more than 2%.

Psagot Investment House macro research department head Guy Beitor says, "The falls on the markets are the result of mediocre or weak macroeconomic data and disappointing corporate reports, following a long period of record profits. We are now seeing a healthy correction in the stock markets. In our opinion, this is not the beginning of a bear market, at least not in the developed markets. The emerging markets are already in a bear market, and we do not expect them to emerge from it in the near future. Despite the weakness we are seeing in the US real estate market, there are no figures indicating that a recession is just around the corner, especially not when the data in the US continue to be among the strongest ever."

Oppenheimer Israel senior equity analyst Sergey Vastchenok told "Globes," "We have been seeing nervousness in the markets since the beginning of the month for all sorts of apparently unimportant reasons. I see no real reason now for the downturn, because the reasons are unrelated to macroeconomic data and the bond market. In big crises, we see weakness in the bond market and spreads opening; today, almost none of this is to be seen. The steep falls at the beginning of the month were accompanied by a rise in yields on long-term US bonds, but that has cooled off. There is a string of events here affecting sentiment."

"Globes": Such as?

Vastchenok: "Texas Instruments made an alarming announcement two days ago, and because it is an important company active throughout the world, it had a bad effect. The explosives sent to the Clintons and Obama also had a negative effect on the market, because it sent the level of uncertainty soaring and affected the market players' mood. It broke investors' confidence yesterday. The market can go down for a short time even when the economy is fine."

Did the corporate reporting season have a bad effect?

"All in all, the reporting season has been good so far, and the guidance for the future is also generally good. For example, Microsoft published good results yesterday, and its guidance was good, too. 160 S&P 500 companies have published reports so far, with average increases of 8% in revenue and 23% in profit, and that's very good. There are pleasant surprises here of 1% in revenue and 5% in profit on the average.

"Right now, there is definitely some disconnect between economic and corporate performance and the state of the markets. It looks as though investors are afraid of trade wars and other factors, and anxiety about the midterm election results in the US is also having an effect."

Maybe the market simply wants a downward correction after the rises in recent months.

"Right. The question is what is the trigger. The market needs a trigger to fall. Actually, the markets in the US rose in the past year despite continual weakness in European and emerging markets. At this stage, it is very hard to tell whether or not the markets in the US will join the general weakness around the world. In my opinion, as of now, it is a healthy sell-off. It is too early to tell whether or not this is the beginning of a bear market."

If the volatility in the markets persists, technology shares will continue to do worse than the others

Epsilon Investment House senior investment portfolio and funds manager Lior Vidor says, "After a long period of preference for the technology sector, we now see preference for the health and financial sectors, which will benefit from continuation of the interest rate hikes. If the volatility in the markets persists, technology shares will continue to do worse than the others. Today, after the close of trading, key companies such as Amazon, Intel, and Google will report their third quarter results. The big question is what their guidance for the for fourth quarter and next year will look like."

IBI Mutual Funds Management investment manager Bernard Manor says that yesterday's steep falls wiped out this year's gains in the S&P 500 and the Dow Jones, showing that sentiment in the US stock market has shifted from a desire for exposure to risk assets to cutting back on risk assets and a move to the safety provided by US government bonds.

"Stock market players are always looking to the future, and are now projecting an economic downturn, with the negative effect from Europe and China, which are reporting weaker than expected growth. The International Monetary Fund recently downwardly revised its estimate for global growth," he says.

Published by Globes, Israel business news - en.globes.co.il - on October 25, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Stock market falls Photo: Reuters
Stock market falls Photo: Reuters
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