Sale of Growth Shares Demonstrates Transition of Markets to New Cycle Stage

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Updated: Oct 30, 2018, 09:10 UTC

Income-oriented equities are the focus of the market as the economic cycle ages. The dollar index is slowly gaining strength

American indices were again under pressure at the end of the day, rewriting the minimums from May on the S&P500 index. According to the results of the day, the losses amounted to 0.7%, although the amplitude of fluctuations remains elevated, reaching 3.8% in just a few hours.

Spreading fixation of profit has put the quartet FANG (Facebook, Amazon, Netflix, Alphabet) in jeopardy, and took away from their total capitalization about $600 billion from the peak values. The main driver of the weakening on Friday and Monday were the Amazon shares, that lost over 14% after a weak earnings report.

At the same time, key indices are supported during recessions, and outside of the current weakening, the trend in the stock markets shifts. The growth shares, an excellent example of which is FANG, risk giving up leadership to income stocks with good earnings and dividends.

Income-oriented equities are the focus of the market as the economic cycle ages. The next phase may be the demand for countercyclical papers, which are presented by the companies of the military-industrial complex, manufacturers of medicines and foodstuffs. But it is not so easy to predict the exact time of this switch.

It should be noted that the purchase of indices on recessions in combination with strong macroeconomic data from the USA does not allow to speak about a large-scale sale, but only about the change of priorities among the investors.

The dynamics of Asian playgrounds implicitly confirms our idea in the morning on Tuesday. Index Nikkei has added 2.2% this morning. The futures on S&P500 have grown by 0.6% this morning, and the Japanese yen (a great barometer of the demand for risks) has lost 0.8%, pointing to the persistence of global investors’ thrust for the purchases of securities.

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The dollar index is slowly gaining strength, settling in 96.50 – one step from the highs since the middle of 2017. The main reason behind this move was weakening of the euro amid fears around the political situation in Germany, where Merkel promised to resign from the post of the head of the CDU party and leave the post of Chancellor after 2021.

This article was written by FxPro

About the Author

Alexander Kuptsikevichcontributor

Alexander is engaged in the analysis of the currency market, the world economy, gold and oil for more than 10 years. He gives commentaries to leading socio-political and economic magazines, gives interviews for radio and television, and publishes his own researches.