As the US stock market turmoil begins to have a greater impact on Europe and the Far East, many investors are growing concerned about the short to medium term outlook. The tech sector, one which historically attracts a greater premium in terms of ratings in the good times, has seen some of the best names struggling. Amazon, Google, Apple and other leading lights in the US stock market have taken a hit with investors banking profits and content to sit on the sidelines.
Quality stocks will come through
There is every chance we could see more downside in the short to medium term amid a delicate balancing act of investor sentiment and market stability. In reality, if you have a significant profit and markets are tumbling there is nothing wrong with banking a profit and letting markets settle down. Even if you have to buy back your favourite quality stocks at a slightly high-level, knowing the markets have settled, this is not the end of the world.
Weak stocks will weaken further
During the 2008 economic collapse many companies were forced to take on significant debt to see them through troubled times. While the stock market had, prior to the recent fall, recovered and pushed even further ahead we did see some stocks left behind. There is every chance that previously weakened stocks, some of them well-known names, may struggle to stay afloat in the ongoing volatility.
Retail has been a very difficult sector in recent years with the online market grabbing the lion’s share and leaving physical retailers with often huge overheads. As we approach the end of the festive period many retailers will simply be limping along until they can bank as much as possible. The first two months of 2019 are likely to see some troubled retailers losing the support of their primary bankers. Indeed, some may go to the wall.
Takeovers and expansion
The best time to hit your competitors is when they are on the back foot, struggling and perhaps susceptible to an opportunistic bid. The alternative is to squeeze your competitors with price promotions and special offers which they cannot compete with. This may sound tough, unfair and a case of Big Brother stamping down, but this is business. In the aftermath of the 2008 economic downturn we lost some of the most established names in the world of business. While this downturn is but a fraction of the severity it will still push some companies to the edge and beyond.
Drip feeding your investments
There will come a point when markets will steady, consolidate at lower levels, often just after a significant sell-off. Picking up quality stocks at the “lowest point” is akin to catching a falling knife and more luck than judgement. So, if markets continue to fall in the short to medium term it may be time to start drip feeding your funds into headline blue-chip investments. Decide how much you would like to invest, put aside two or three different tranches and buy on the way down and also on the way up.
The idea of buying in the way up is that the worst is over, markets are recovering and there is more stability. However, the fact you have also acquired stock on the way down means that as markets do recover your average price would be lower.