The immediate observation for those watching this macabre sell-off is that stocks are pretty much being sold off based upon how they would be expected to hold-up in a recession, that will presumably be starting within the next 6-months or so.
Any stocks that have a very high valuation, are particularly leveraged, are pro-cyclical or are discretionary look out!
Stocks in these categories are down indiscriminately, regardless of near-term or current business trends. The market is being forward looking and pricing in a much higher probability of a recession on the horizon. There is no way to prove or dis-prove the recession prediction until more time goes by.
Some stocks of note at 3:00PM:
- Goldman Sachs (GS) – (down 9%)
- Coach (COH) – (down 11%)
- Sears (SHLD) – (down 12%)
- K-Swiss (KSWS) – (down 12%)
- Mosaic (MOS) – (down 12%)
- PVH (PVH) – (down 13.5%)
- Abercrombie & Fitch (ANF) – (Down 13.5%)
- Hertz (HTZ) – (down 14%)
- Linked-In (LNKD) – (down 18%)
- Bank of America (BAC) – (down 18%)
- Citigroup (‘C) – (down 18%)
- Dry Ships (DRYS) – (down 24%)
This list is just meant to be illustrative. The point is that what is happening is what market participants call: “the recession trade” is being put on.
In this case, what is expected to do well, is some consumer staples, tobacco, Wal-Mart, McDonald’s, utilities and in this market cycle Gold.
Be aware – that either investment approach, putting on a “recession trade” or betting against a recession is fraught with risks and also with very large potential returns. If you don’t have any view or conviction in the direction of the economy it is best to tread carefully in this market environment.