Global markets sold off once again on Friday, with US Technology stocks leading losses. Global investors were concerned as quarterly results from Amazon and Google (Alphabet) missed market expectations.
Investors may need to prepare for more volatility through the remainder of the US earnings season (which so far has not been as inspiring as prior quarters) and ahead of the November 6 US mid-term congressional elections.
As we discussed last week, there does not seem to be a single catalyst for the sell-off, but a number of concerns worrying investors. Rising interest rates, and impacts of trade tensions and Chinese growth are the two big risks for markets, in our view. In terms of interest rates, we are watching US inflation data closely, as a spike in inflation is likely to see the US Federal Reserve raise interest rates at a much faster rate than is currently being priced-in by the market. Secondly, an escalation in the US-China trade war could have significant implications for global growth.
We believe it is important for medium-term investors to remain calm in volatile periods, but we are clearly at the latter stages of a long bull market. As such, investors may want to allocate a portion their portfolio to cash to protect against downside moves.
Stock in Focus: Amazon (AMZN:NASDAQ)
The amazing run for Amazon looks to have finally ended, with its shares hitting a speed bump and falling -7% on Friday. The drop came after Amazon failed to meet the market’s expectations for its 3rd quarter result.
The company missed on revenues, and guided for much lower revenue, and operating profit in the fourth quarter. Revenue from Amazon’s international business, which brings in 27.5% of total sales, was at the heart of the shortfall in results, with growth halving to 13.4% compared to the previous quarter. Amazon’s outlook for holiday season sales missed targets, fanning concerns that Wall Street’s tech darlings are finally starting to face stronger competition.
Given the stock was trading at all-time highs of over $2,000 a share only last month, the bar was clearly set very high in terms of expectations. We still believe Amazon is an amazing and high-quality business for long term investors, although a pull-back/disappointment such as this was only a matter of time, in our view,
We currently have a HOLD recommendation on Amazon.
Australia & New Zealand Market Movers
The Australian share market was a touch higher on Friday (ASX 200 index +0.02%), after a global sell-off pushed Australian shares to their lowest level in 12 months. It was a light day in terms of stock-specific news, although the Australian dollar continues to remain under pressure. The Aussie has been hammered as risk sentiment took a knock following steep losses in US stock futures and weakness in the Chinese yuan (The Australian economy is closely linked to the prospects of the Chinese economy).
The New Zealand market was virtually flat on Friday (NZX 50 index +0.00%). The NZ market has fallen sharply from a record high in September, although it's yet to cross the -10% threshold indicating a technical correction. The local bourse is the only major stock index in Asia-Pacific that is still in positive territory for the year-to-date, up 2%. In stock news, trading in Heartland Bank is now halted until Nov. 1 when it restructures into Heartland Group, enabling its Australian reverse mortgage business to operate outside the umbrella, and prudential supervision, of the licensed bank.
3 Things Markets Will be Watching this Week
1. US corporate earnings season for the 3rd quarter is underway, with a number of major companies set to report this week.
2. Trade related news-flow is likely to continue to feature in headlines, and important monthly US employment figures will be released at the end of the week.
3. Locally, in Australia some of the major Banks such as ANZ and Macquarie will be releasing updates.
Have a Great Day