Thursday’s session took by surprise many investors, because the intensity of this fall reminded us of February- March period’s relevant situation. Fall was anticipated because the technological sector has severely rallied since the lows of March, with the individual stocks recording returns as much as 100% or even more. So, this fall is not only anticipated but is also regarded normal, although daily losses of -5,0% do not boost investment sentiment.
1) Macroeconomic data
At this period, government’s support package which was granted to American citizens as a lockdown’s effect easing measure, expires or is about to expire. This implies that companies, which did not fire employees due to this support package, will start doing this in the next weeks. Furthermore, in the manufacturing sector, after a steep fall which has been followed by a steep upturn, it is normal to encounter lower levels, since the economy is still on pandemic spree.
2) Fund rotation
Technological sector has been one of the most profitable during the pandemic and working from home era. Profits of the sector’s big companies (but also of some smaller ones) are huge and rapid and this led to relatively intense pressures, which could go on. Main factor though is the rotation. The news that the American States should prepare to vaccinate vulnerable groups with the new vaccine on November the 1st, provoked optimism that the economy will go back to normality. And this will boost other sectors too. These sectors are targeted by big funds, which absorb profits that come from the technological rally.
3) Technical nature sales
Nasdaq’s and major stocks’ unstoppable upturn gave an extreme boost to options exchanges, because investors pursued to find a safe shelter in case of a downturn. Dealers with an exposure to short calls (as opposed to long calls) suffered limitless losses and this circumstance during a sell-off period leads to stock selling so as to prevent their asymmetric exposure. This intensifies pressures since everyone wants to buy even lower.
What should investors do from now on
The most appropriate strategy is the faithful implementation of the investment plan,
as this is always judged in the appropriate time horizon
Investors should keep their composure and bear in mind that 2020 is year of high volatility, which demands devotion to key investment objectives that are set. Strengthening of portfolio positions is appropriate as it creates significant added value in the investment portfolio.
- Diversification. A well- structured portfolio is comprised of different asset classes, which have the potential to set a powerful balance line in the portfolio and keep it in track. In periods when new positionings are favored, there should be made use of liquidity.
- Staying safe from fall. Every portfolio should have safeguards. An effective risk management basically derives from a well- diversified portfolio.