Username
Password
Forget Password?
  1. Indices
  2. Commodities
  3. Currencies
Straits Times 3,170.77 +0.88 +0.03%
Hang Seng 27,288.09 -65.84 -0.24%
Dow Jones 25,585.69 +95.19 +0.37%
Shanghai Composite 2,892.38 +39.38 +1.38%
3 Reasons Why You Should Avoid Stocks Markets Now
Aspire, Investments | 16 October 2015
By: Raymond Leung
Articles (142) Profile

In the past two months, the stock market has been filled with ups and downs. The S&P 500 (SPX) fell from 2,100 to 1,867 before recovering to 1,988, all in the month of August. In the past month, SPX dropped to 1,881 from 1,995 followed by a rise to 2,013.

Source: Year-To-Date Chart of S&P 500, Google Finance

With so much volatility in the market, what exactly is going on in the market? This leads us to an important question, should we be bullish or bearish?

1. Fed’s QE Will Come Back & Bite Us

Source: 10 Years Chart of S&P 500, Google Finance

Since the financial crisis in 2009, the Federal Reserve (Fed) has taken initiatives to stimulate the market. A near-to-zero interest rate environment and multiple Quantitative Easing (QE) by the Fed has led the stock market to new heights; crossing 2,100 earlier this year.

Looking at the graph above, we can say that the Fed did well in assisting the market recovery and we are doing well despite the recent falls. However, you have to ask “Are we doing that well?”

2. Disparities Between The Stock Market & Economy

Source: US ISM PMI, TradingEconomics

As the world’s second largest manufacturer, the manufacturing sector in US plays a large part in the country’s economy. In contrast to the performance of the financial market, the manufacturing sector is barely expanding with the latest figure of US ISM PMI standing at 50.2 (Above 50 stands for expansion while below 50 stands for contraction). It is struggling to keep itself above contraction in the manufacturing sector.

Source: US Factory Orders, TradingEconomics

Factory orders have been unstable and fluctuating quite substantially each month. It is notable that the data shows a strong growth of more than 10 percent in July 2014 but fell more than 10 percent in the following month.

3. Unemployment Still High; Inflation Increasingly Low

Source: US Unemployment Rate, TradingEconomics

For the month of August and September, the unemployment rate in US has been staggering at 5.1 percent. This was higher than the pre-financial crisis of 4.4 percent when the economy was doing well. The unemployment data excludes those who gave up finding jobs due to frustration and underemployed.

Source: US Inflation Rate, TradingEconomics

Furthermore, inflation rate in the US has been falling this year, at some points even close to zero. This is in contrast of a 2 to 3 percent inflation rate that can be seen in a healthy growing economy. With the financial market at all time high, the US economy is still facing deflation which is one of the signs of a contracting economy.

The disparity between financial market and the overall performance of the economy is high. Easy money that was floating in the market through QE and low interest rate has inflated the stock market strongly but is less than effective on the economy.

Investors’ Takeaway

Source: US Government Debt to GDP, TradingEconomics

With the US government debt to GDP at all time high since World War II, one has to ask “How far is too far?” The monetary policies that the Fed implemented since the financial crisis have left the US government with high levels of debts.

When cheap money is cut off by the Fed, the financial market will be left to face the economy. The high-priced financial market will have to fall back to be in sync with the economy. As such, investors should steer away from stock markets – stocks have a long way to drop before they reach intrinsic values.

Still worried about when and how much would the US Federal Reserve hike interest rates? Do you have burning questions that you want to ask regarding the China economic slowdown and SHCOMP nosedive in June? Are you confused if any of the external factors from other countries in Asia will affect your Singapore stocks portfolio?

Catch renowned investors and speakers with rich experience in the stock markets, who have had witnessed multiple stock market crashes and global recessions over the years at Shares Investment Conference 2015!

Speaker profiles

1. Dr Chan Yan Chong, a renowned investor with more than 25 years of experience and the MBA programme director & associate professor of business school at the City University of Hong Kong.

2. Kevin Gin (CFA), the Founder and Principal of Alpha Capital. He was the former COO for CITIC Securities, Head of Singapore and Regional Real Estate Research for Kleinwort Benson Securities Asia (now part of Credit Suisse) and Head of Greater China Property Research with Yuanta Securities (Hong Kong)

3. Louis Wong, one of the most experienced fund managers in Hong Kong. He has over 25-years of solid experience and track record in the financial market. He was awarded Best Financial Analyst for 3 years by the Putonghua Channel of Radio Television Hong Kong and is also a part-time instructor of several investment courses in various Hong Kong universities.

4. Daniel Loh, an investment coach that specialises in equities and derivatives trading, he appears regularly on local TV financial programmes like “Good morning Singapore” and “Hello Singapore”.

Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.


Join The Conversation
The Shares Investment editorial team welcomes constructive feedback on our coverage and content. We would also be delighted to answer any questions on the above article. Leave us a comment below, and we'll get back to you shortly!

All Rights Reserved. Pioneers & Leaders (Publishers) Pte Ltd. Best viewed with Mozilla Firefox 3.5 and above.