The Stock Market Is About To Crash
In a recent Beat The Market video, I highlighted 3 different ways the tech bubble would pop.
One of the factors for the tech bubble pop just happened.
While most other sectors have suffered heavy losses or are barely in the green, tech has soared to new highs.
Now we face an important moment that hints at a looming crash.
Not only is the stock market overvalued by practically every indicator, but now the big players in the market are experiencing some downward motion.
The FAANG stocks — Facebook, Apple, Amazon, Netflix, and Google — all reported earnings yesterday.
Due to a mix of falling short of expectations and high valuations, all of FAANG stocks except Google tanked.
All of those stocks went down 5% or more today, and while Google started off strong, it shed over 3.5% since the start of the day but still ended in the green.
High flyers also got decimated today.
You might say that these are just 5 stocks. How can they have such a big impact on the stock market?
The answer resides in indexes…where these 5 stocks account for 15% of the S&P 500’s gains. Without these stocks, the S&P 500 is down for the year.
These stocks were vital for fueling the rally for indexes such as the S&P 500 and NASDAQ. If these stocks go down, they’re taking the index funds with them.
And we’re not just talking about stocks that are a big percentage of the index fund. We’re talking about giant companies that have a potent sway over consumers, sales, and the economy. These are the stocks you look at to get an idea of how the stock market will perform in the future.
Combine that with the current economic climate, lack of stimulus, and an upcoming election, and we have a nasty combination.
FAANG was a critical catalyst for the stock market’s recovery other than the printing machine. Now that same catalyst can result in the stock market’s undoing.
This isn’t meant to be a panic article. Don’t sell your shares if you plan to hold onto them for the long-term. I’m sitting on more cash than usual but I’m not cashing out of all of my stock positions.
I sold some stocks at a loss to balance out my capital gains but am not abandoning the ship. No investor should ever truly abandon the ship with all of their investments.
There’s an opportunity for profit in any market. Right now, I’m buying puts and selling covered calls. That can change in two weeks if we get better news, but FAANG’s downfall today can send a bigger signal for what’s about to happen to the stock market.