Market Overview

Sale of growth shares demonstrates transition of markets to new cycle stage

American indices were again under pressure at the end of the day, rewriting minimums from May to index S&P500 According to the results of the day 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) under the main blow, took away from their total capitalization of about $600 billion from peak values. The main driver of the weakening on Friday and Monday were the shares Amazon, 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 shifts in the stock markets. 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 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 large-scale sale, but only about the change of priorities among investors. The dynamics of Asian playgrounds in the morning on Tuesday implicitly confirms our idea. Index Nikkei Adds 2.2% in the morning. Futures on S&P500 Grow by 0.6% in the morning, and the Japanese yen (a great barometer of demand for risks) loses 0.8%, pointing to the persistence of global investors thrust to the purchases of securities.

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

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