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Beginning of a Bear Market? S&P 500 Down 100 Points in 1 Week

This week (2 of Oct. 2018) the US index S&P 500 went down almost 7% from September. Is this a correction or the beginning of a bear market? Analysts disagree – some (e.g. CNBC) mention that this happened previously (e.g. 2000, 2007) and this is a correction. However, thinks it is more than this.

Most of the decrease came from the (newly established) communications sector, a diverse S&P 500 sub-category (including companies such as Disney, AT&T and Alphabet). Almost half of the sector’s capitalisation is derived by the technology stocks called FAANG’s (Facebook, Alphabet – Google’s parent, Apple and Netflix). Together, all tech stocks went down 5% (mostly on the news of their growth slowing down). This might actually be a sign of the market slowing down, so I would watch carefully the Q3 earnings reports. Some banks already opened the reporting season with good news (notably JP Morgan Chase). But they are very few and the bulk of the news might come.

Of more importance for the stock market will be the Q4 (especially December) sales and margins forecasts of the big companies. There is still uncertainty on where the US economy will go, with FED moderately rising the rates. Whatever the signals, bears are getting slightly stronger – the US stocks have increased for more than 3 years by now, thus it might be time for some breath-pacing.

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