Undoubtedly, October represented a brutal month for the stock market. The benchmark Dow Jones Industrial Average shed 5.6% during that time, immediately destroying what had been a promising rally.
Another factor that didn’t help ease investors’ minds was history. Many of the worst collapses in the stock market occurred in October. This included the 1929 crash that led to the Great Depression. For whatever reason, sentiment tends to die in the same month that hosts Halloween.
But in the last several days, we witnessed a dramatic turnaround in the stock market. For November, the Dow Jones has gained over 3%, a small but important number to restore confidence. Would this be enough for the retail folks to begin putting their money to work?
If recent trades and the futures market have anything to say, not quite. After driving in some positive moves earlier this month, the last two trading sessions have disappointed equity bulls. Furthermore, crude oil futures suggest that more deflationary pressures will impact the major investment indices.
Prepare for a Turbulent Ride in the Stock Market
Let’s tackle the equities first. One of the biggest concerns isn’t just the declines witnessed on Friday; it’s that the volatility is disjointed among the sectors.
For instance, the Dow Jones and the S&P 500 experienced similar losses. The former was down Friday 0.8% while the latter shed 0.9%. But the Nasdaq suffered a conspicuously-steep drop of nearly 1.7%. That’s almost a full percentage point off the Dow.
What’s worrisome here is that the Nasdaq hosts publicly-traded companies that have an edge towards tomorrow’s industries. We’re talking big names in cloud computing, cybersecurity, artificial intelligence, biotech, even the blockchain. Losing competitiveness in this arena implies major generational challenges.
Our economic adversaries, which include the Chinese and the Russians, acknowledge that the next great conflict isn’t merely centered on natural resources; instead, whoever dominates emerging technologies such as AI will lever untold influence and control over world affairs.
This is one of the reasons why President Trump has such a harsh economic policy towards China. But if our tech companies can’t find financial success, it really doesn’t matter how many sanctions we slap.
The other macro headwind working against the stock market is oil. Both international and domestic oil benchmarks have cratered since early last month. If the volatility doesn’t find a bottom soon, investment analysts will need to refigure their longer-term strategies.
That’s because the oil markets represent consumer demand at its most basic core. If individual people do not feel confident about the economy, they won’t drive or fly or buy in frequencies beyond what is really necessary.
Based on oil’s technical charts, investors may want to strongly consider going into defensive mode.