Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
Gold Price During Hyperinflation - 12th May 21
Stock Market Extending Phase Two? - 12th May 21
Crypto 101 for new traders – ETH or BTC? - 12th May 21
Stock Market Enters Early Summer Correction Trend Forecast Time Window - 11th May 21
GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
Cathy Wood Bubble Bursts as ARK Funds CRASH! Enter into a Severe Bear Market - 11th May 21
Apply This Technique to Stop Rushing into Trades - 10th May 21
Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
CHIA Getting Started SSD Crypto Mining by Plotting and Farming on Your Hard Drives Guide - 9th May 21
Yaheetech Mesh Best Cheap Computer /. Gaming Chairs on Amazon Review - 9th May 21
Breaking US Trade Embargo with Cuba - Build 7 Computers in 14 Hours Before Ship Sales Challenge - 9th May 21
Dripcoin Applies New Technology That Provides Faster Order Execution - 9th May 21
Capital Gains Tax Hike News: Was It REALLY to Blame for Sell-off? - 7th May 21
Stock Market Transportation Index Continues To Grind Higher - 7th May 21
SPX Stock Market Correction Arriving or Not? - 7th May 21
How to Invest in an Online Casino? - 7th May 21
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Investors July Were Guests of Game of Thrones "Red Wedding"

Stock-Markets / Stock Markets 2015 Aug 03, 2015 - 10:11 AM GMT

By: ...

Stock-Markets

MoneyMorning.com Michael E. Lewitt writes: The simultaneous blood baths in commodities and U.S. stocks continued in July but failed to penetrate the skulls of U.S. stock investors who continue to allow themselves to be brainwashed into believing that they can only make money by owning an overbought market.

The S&P 500 (INDEXSP:.INX) recovered all of its June losses, gaining 2.1% in July including 1.2% last week to close the month at 2103.92, not far off its record closing high of 2,134.72. The index is now up 2.2% (excluding dividends) for the year.


The Dow Jones Industrial Average (INDEXDJX:.DJI) is showing greater recognition of the troubled state of the world. And after last week's 0.7% gain to 17,689.86, it is down -0.7% year-to-date.

The Nasdaq Composite Index (INDEXNASDAQ:.IXIC), powered by stocks such as Amazon.com Inc. (NASDAQ: AMZN), Facebook Inc. (NASDAQ:FB), Netflix, Inc. (NASDAQ:NFLX) and other biotech and social media names, is outpacing the other indices with a year-to-date gain of +7.6% after adding 0.8% last week to close at 5128.28.

At this point, investors can no longer ignore the fact that the knives are coming out…

The Weakness Under the Surface Is Obvious Now

The entire stock market, however, is seeing narrowing breadth and is vulnerable to a correction when those large capitalization technology, social media and biotech stocks stop sucking all the air out of the room.

The strength of the indices is disguising serious weakness under the surface. Anything commodity related has been decimated.

After announcing earnings on Friday, ExxonMobil Corp. (NYSE:XOM) and Chevron Corp. (NYSE:CVX) shares are down 21.1% and 31.7%, respectively, over the last year. The Energy Select Sector SPDR (ETF) (NYSEArca:XLE) is down 29.8% over the same period.

Commodity hedge funds are getting wiped out, including one fund owned by private equity giant Carlyle Group LP that saw its assets drop from $2 billion to $50 million as a result of losses and client withdrawals. A number of other funds have been forced to close shop after suffering massive losses.

The problem with the commodity space is that the prospects for recovery are dim in view of the likelihood that the U.S. dollar is going to continue to strengthen and China's economy is going to continue to weaken.

Commodities are priced in dollars, so dollar strength hurts demand, while China has been the marginal buyer not only of oil but of virtually every other major commodity such as iron ore, aluminum and copper since the financial crisis. Commodities have sailed into a perfect storm and are taking a lot of ships down to the bottom of their sea.

That's not the only place investors are getting "killed"…

A Dark Fantasy Story Becomes Market Reality

Another market that has been shattered by the commodity sell-off is the junk bond market. July was like the infamous, gory "Red Wedding" in Game of Thrones for investors in energy and industrial junk bonds.

While the overall junk bond market saw spreads widen by 38 basis points and average yields near 7% for the first time in a long while, energy bond spreads engorged by 208 basis points and average yields swelled to 10.7% while basic industry bond spreads swelled by over 100 basis points and average yields ended the month at 9.4%.

For those unfamiliar with the bond market, such moves are only seen when the market is totally melting down and mean that bond prices are dropping by 10-20 points, leaving bloody corpses strewn all over the place.

Several fracking companies gave up the ghost and filed for bankruptcy and many more will follow because oil prices are almost certain to test their early 2015 lows. The real danger is that the rising dollar could push oil into the $30s and keep it there for longer than virtually anybody is forecasting, flushing more leveraged energy and commodity companies into bankruptcy court.

And then there's China.

You Would Want to Sell, Too

China's Shanghai Stock Exchange Composite Index lost 14% in July despite the efforts of Chinese authorities to stop the selling. China's markets remain in a freefall that would be far worse… if they were allowed to operate like real markets.

In fact, every time investors were allowed to sell that's exactly what they did. China's authorities have destroyed any credibility they had with respect to their markets and it is going to take a long time to get it back even in this gullible world of ours.

The bigger question is what China's leaders can do to prop up an economy that suffers from massive overcapacity in all the export and real estate sectors and a debt overhang of at least $28 trillion in its banking and shadow banking system.

China is headed for a financial crisis with the only questions being when it will occur, how it will deal with it, and how severely a crisis hitting the global economy's primary post-crisis engine of growth will affect the rest of the world.

Investors may not want to contemplate these questions as they hug their 401(k) statements at night and tell themselves how brilliant they are for owning stocks like Apple, Inc. (NASDAQ:AAPL)… and Amazon… and Facebook… and Netflix… but that bubble will burst as well – like all bubbles will.

When the price of oil – the most important commodity in the world – drops by more than 50% in a period of six months, it is sending a signal about the health of the global economy.

Anyone who believes they don't need to listen to that signal will regret it.

Source :http://moneymorning.com/2015/08/02/in-july-investors-were-guests-at-the-markets-red-wedding/

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in