US stock market: growth out of control

3 Jan 2020

The Dow Jones Index is showing the longest period of growth in its history. Given that this growth is completely divorced from economic development, even the most avid bulls in the US stock market are beginning to doubt about prospects: the growth is clearly out of control.

There is another fact: when the market grows very rapidly in a very short period, it becomes extremely vulnerable to correction.

According to many analysts, a correction in the US stock market is inevitable and its minimum scale is 10% -20%.

Jack Ablin, chief investment officer at Cresset Capital, expects a 15% correction in early 2020.

The problem of the US stock market in terms of continuing the bull rally is the lack of drivers for such growth: the economic growth rate has long lagged behind the stock market growth rate, on the eve of the Presidential election, there are no serious economic reforms to be expected, companies are stopping their share buyback programs, and their financial results for the fourth quarter in a row show worse growth rates.

Perhaps the only chance for stock market growth is an active interest rate cut by the Fed. But the Central Bank made it quite clear that it is not going do that.

Recall, we consider 2019 the last year of unjustified growth in the US stock market. Already in 2020, it is going to adjust. The scale of correction is from 50% and higher. Given that in recent years, shares of technology companies in the US stock market have grown by an average of 7-8 times, the US stock market will no doubt become the object of massive sales. We recommend participating in this process, selling both the market as a whole (Nasdaq index) and the shares of individual issuers (Apple, Microsoft, Alphabet, Oracle, etc.).