There was a positive sentiment on Thursday, at the start of the trading day. However, as we saw in the past five trading days, the positive morning vibe was gone by the midst of the American session. Markets retain the pressure against the stocks of high-tech companies, which in turn pushes indices down.
It can be said that the change in market favourites represents the transition to the next phase of the market cycle, in which participants are more focused on the company’s fundamental performance, rather than on the growth speed.
This is a clear signal that rising Fed interest rates force market participants to engage in prospect activities after the end of the easy money era, when interest rates were exceptionally low. Not surprisingly, the decline of the market in October was driven by the comments of Fed’s chairman, who made it clear that the rates may exceed the neutral level.
Yesterday, he heard another statement from Fed, when Powell referred to the economy as “really strong”, thus supporting market expectations for the December rate hike. Among his comments, it is worth paying attention to his concern in regards to the growing corporate debt.
Rising interest rates consists of the main tool against the excessive growth of corporate debt, and this is a bad sign for the growth stocks. A rapid rate hike may quickly move the market to the next phase, when defensive stocks are in demand and where consumer demands follows a steady decline (e.g. utility and healthcare companies).
Investors will careful pay attention to the retail sales in the United States today, in search of an answer to the questions of whether consumer demand is slowing amid of rising interest rates. A weak sales figure may increase the alertness to the markets by increasing the pressure on growth shares.
