The US equity market has been pummeled over the past few months, yet, in my opinion, the pain has not just been felt by stock investors.
The price of oil has fallen about 30% over the last month, a stark reminder of how quickly markets can shift gears in search of price discovery.
The loss of value in US markets in the last few months has been keenly felt among heavily weighted companies in the major benchmark indexes, especially technology enterprises.
Global Selloff
However, if one looks across the globe, the stock market pain is nearly everywhere.
In fact, US markets have held up better than most regions such as China, where declines are in the 20% range.
Markets in Japan, Europe, Australia, Canada and Mexico are all down at least 5%,
Contagion Risk
In my experience, when markets experience the waves of selling we’ve seen, there are usually specific reasons behind the declines.
What is important to remember in my view is that markets are digitally interconnected and sentiment shifts can spill over into other regions.
If there’s market turmoil in China, where some company is leveraged and facing capital calls, it can have immediate ramifications in the United States.
Redemption Risk
Investors have lost money worldwide and that can mean year-end redemption risk for hedge funds in my analysis.
In my opinion, with oil and stocks down so severely, that could in turn lead to selling pressure in other asset classes.
With 2018 winding down, I think plenty of money management firms across the globe may start looking at closing the year by either protecting gains or selling losers for tax reasons.
Takeaway
That could mean more market turmoil, but also opportunities. If you are a long-term investor, there is a good chance you now have your pick of stocks that you might have wanted to own for a long time.
In my view, you should compile your list, focus on what exactly you want and why, and when the time is right, you should take your shot.
Photo Credit: Darren Flinders via Flickr Creative Commons
