The impact of falling commodity prices

Over the last 3 weeks markets have been in a serious slump as a strong sell off takes place. Higher interest rate in the US paired with another potential hike on November 7th has added fuel to the fire, causing investors to move into safer and higher yielding bonds.Due to this move the Wall Street has dropped from 26,954 (3rd of October) to a low of 24,528 (24th October), while the US Tech 100 has dropped from 7,699.13 (1st of October) to a low of 6,722.13 (24th October). The question is are these drops justified, or do they provide opportunity for investors to re-enter the market in equities which have been susceptible to the overall sell off. The sentiment held by many analysts and investors is that the burst of market stress is a blip, shared by Michal Strobaek the chief investment officer at Credit Suisse stating “We do not advocate selling into this correction”.

The US Tech 100 is on track to post its weakest monthly performance since October 2008, providing an interesting sector to look into for stocks which have become undervalued in the process.

A stock that has performed exceptionally well this year is Amazon. AMZN has grown 52.26% YTD however after reporting the Seattle giant dropped 9%. Investors focused in on a slowing e-commerce growth rate and a disappointing holiday-quarter outlook, despite reporting higher than expected third quarter profits. Historically AMZN are famously strong performers in the 4th quarter however are targeting an increased sales growth of 15% this quarter the lowest in 4 years. Investors who have become accustomed to seeing significantly stronger growth are now becoming concerned. This begs the question are investors now being greedy snubbing 15% expected growth, or are there actually concerns of an economic slowdown? AMZN is one of the largest and most innovative corporations in the world therefore if any company can weather the storm, not many are better suited than AMZN.

On the opposite side of the spectrum Tesla moved their report forward to Wednesday after a tumultuous year which was strongly affected by the outspoken keyboard warrior Elon Musk. The early announcement was with good reason as TSLA announced a surprise third quarter profit seeing the car maker’s shares pop on market open. Tesla opened 15$ higher than the previous market close at 304$ and gained a further $11 throughout the day’s trading. The profitable quarter came with additional news of increased revenue to $6.8 Billion beating projections of $6.3 Bn, soaring Model 3 deliveries and significantly improved economies of scale. Earnings per share have been flipped on their head currently at $1.70 a significant improvement compared to a loss of $3.70 a year ago. Projections of increased gross margin from the Model 3, Tesla is set for a stronger performing quarter than the last.

Both products above highlight opportunities that have arisen due to the recent volatility in the market paired with the ongoing reporting season.

Notable Upcoming Reports (US Tech 100):

FaceBook (FB:US) – Oct 30th 2018

Apple (AAPL:US) – Nov 1st 2018

Liberty Globaly (LBTYA:US) – Nov 7th 2018

CostCo Wholesale (COST:US) – Dec 13th 2018


The above-mentioned market views and content reflect only the opinion of the author, not that of ayondo. This service is for informational purposes only and does not constitute advice or investment advice.

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