Recapping my previous post, many retail investors may have tried to time the markets and have bought the recent dip. It is likely many of these investors are unaware of the actual risk they are taking when investing. This week, the sentiment across headlines is increasingly uncertain. As more and more coronavirus cases are detected globally, people are recognizing that the economic recovery has a long way to go. In the U.S., the S&P 500, Dow Jones Industrial Average, and the Nasdaq 100 returned to losses Wednesday after posting gains on Tuesday. Some of the major losses came from the big tech companies, which some investors now consider overvalued.
Tesla was a surprise for me, posting a 10% decline on Wednesday right after their anticipated battery day. Elon Musk and his team presented three main announcements: reducing battery costs by over 50%, increasing range by 50%, and lowering investment costs by 70%. All this sounds impressive and came with the promise of a $25k Tesla, yet with no defined timeframe, Tesla took a hit on Wednesday. On a side note, California announced a ban on the sale of new fossil fuel powered cars beginning in 2035. This is the first state in the country to implement such a drastic measure. For investors who believe in Tesla, the opportunity is likely in the long run and they may view today’s price drop as an entry point.
Looking at commodities, it appears that base metals are starting to lose their momentum. As economies around the globe are facing increased cases of coronavirus infections and therefore uncertainty, prices for metals are starting to drift lower. Copper and aluminum are sliding and stand out as the worst performing commodities. Iron ore, which had been on a run since March, has also started losing momentum. However, this comes as no surprise, as miners had warned of a pullback coming due to reduced demand.
Iron Ore – (IOEF) – Daily 6 Months
Currencies have been interesting to watch too. The British Pound, Euro, Yuan and many emerging market currencies had been strengthening versus the US Dollar, but as uncertainty has been building surrounding the US election, the Dollar has rallied and the Emerging Markets Currency Index posted a significant decline on Wednesday. The Mexican Peso, widely used by institutional investors, declined sharply as well. The US Dollar had been in a down trend for months and with the rally we are seeing, it is very likely some trend investors were stopped out of their positions this week.
MSCI Emerging Markets Currency Index – (MXEF0C) – Daily 6 Months
Volatility and uncertainty are increasing by the day providing for interesting times in the broader markets. It may take a more severe correction to cause retail investors to pull in their horns. For now, I think many will continue trading with slightly more fear than a couple of months ago. Only time will tell what the future holds, but for now there is little doubt this uncertainty will impact investors’ decisions in the months ahead.