The weakening of sentiment in the US markets is happening. We are witnessing home loans getting pricier, new starts in housing shrinking, inflation coming down month on month, and investors reacting very sharply to bad news.

The sharp fall in stocks like FedEx and Adobe in a single trading session is the beginning of a new trend. Valuations see sharp contractions, and investor perception turns irreversibly negative in one stock after another. The stocks head down to form lower bottoms. Rallies in such stocks get sold off very quickly.

Indian investors who ventured to buy US equities are struggling to deal with this trend. They went into global investing with the assumption that the US markets are unlikely to fall. This assumption has been turned on its head. They are experiencing more volatility in their US stock holdings than in their domestic portfolios. Even global blue chips like FAANG stocks are seeing sharp cuts in valuations. They are not finding much support even after the sharp fall seen in their prices.

The markets are expecting a wider fall and sharper cut in valuations even in the best Global companies. The Robinhood investors, as the newbies in the US markets are referred to as, are seeing red in every part of their portfolios. This trend is likely to drive out most of the new investors who entered US equities during Covid. With participation coming down, the volatility in US markets could actually rise further as new investors will exit in haste and there will be very one-sided moves as volatility rises. This will see a sympathetic effect in global emerging markets.

Our markets will need to weather this volatility. But, the inflation trends and investment flows will drive our markets. Improvement in markets will depend on how we manage the macros. Our markets will behave sympathetically when global markets fall and take support to recover the strength of our global macros. All this will only mean routine spikes in volatility. This means that we are going to need a lot more mental agility to overcome volatility and turn it into an opportunity.

Investors who focused solely on their stock picking prowess for the past two years are going to be tested on their temperament in the next two years. We are investing in very interesting times.

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