The stock market has been suffering through a strange period since the middle of the summer. The stocks have generally declined with some breakouts that proved to be temporary.
The S&P 500 has fallen overall since the beginning of August by 7%. The reasons for this could be numerous. For one, the most important stocks in the market have lost momentum if we look at historical stock prices. They provided much of the growth in the index. Without their leadership, the index suffered considerably. Apple, for example, declined by 12%. However, despite the decline, the market still expects these to be the most profitable companies in the market.
Analysts expect their earnings to completely outdo their competition. They have a 15% annual compound growth rate, whereas the S&P 500 overall only has 5%. However, the multiples are down to 27 times forward earnings from 34, pointing towards a significant shift here,
Those that have generally performed badly in recent months are predictable. They include industries that are cyclical, or in manufacturing. This shows that we are having problems with slowing growth, as these are the industries analysts expect would perform poorly. Banks, for example, have had a woeful performance, exactly as experts would foresee. However, the hot stock include industries like defensive medicine, where shares have been doing quite well.
We should also note how the options market is performing. It appears that investors have been getting more cautious here as well, and there have been calls for protection from instability. One indicator is the pull-call ratio. This has been at its lowest point since July last year and means people are being more careful with options contracts.
The stocks have been performing poorly despite positive economic news. It is possible that this may just be a period of stabilisation before the continuance towards future growth.
