Looking at what is happening again on Wall Street, the NASDAQ is down by almost 4.5% and the Dow is also under pressure. So when you look at these tech stocks would you say this is cleaning of the froth or do you think there is going to be some serious repricing of valuations?
Well it has been a very quick downward movement in the last two days and we are getting pretty close at least on the NASDAQ side to correction territory. One of the issues is that some investors, funds and portfolios have downside triggers but we are also going into a three day weekend and with the VIX up some investors may just want to get out and wait until Tuesday.
For the last two days we did see the markets really taking it on the chin as it was a terrible Thursday followed by the rout that we saw on Friday. But having said that do you believe it is only a short term blip or are investors already pricing in the high valuations due to which we are seeing a sell off that is going on in the markets?
Well there has been a very quick run up in the last couple of months and these things are not always either sustainable or necessarily in a straight line. We are still having serious problems with COVID-19 but it is ironic that we found out that employment improved and so it is surprising that the markets have gone down despite relatively positive news.
Look at the shares and the kind of cuts that we have seen. Apple was down almost 8%, Facebook more than 6%, Alphabet down 5% and Netflix down 5%. Obviously no one knows where this is going but all this extra liquidity that we had seen thanks to a lot of action from the US Federal Reserve was finding itself in the tech stocks which were going towards the NASDAQ as well. So are we going to see a fundamental change or is it too early to call anything like that?
I think it is too early to conclude anything. We should really have to see what happens in the next few weeks. The election is inching closer each day and maybe there are some concerns being expressed in that regard. Although the tech companies should not be so affected, there are also political issues going on with Tik Tok and Facebook which may be causing a little bit of concern.
If you look at the economic data, the US unemployment rate has also fallen to 8.5% as against 10.2% in July. But does it really point to some sort of a recovery that we may see in the job market?
I think you have to really stratify the types of jobs where there has been an initial improvement as many kinds of middle, upper middle jobs retained were of people who could work from home easily. But it has been very very hard for the areas of the economy where people had to actually work out of their home. I feel we are going to see a new wave of layoffs and furloughs coming once the summer is over and larger businesses begin to reassess what they really need for the next 12 months. We are seeing some of the airlines have finally had significant layoffs because they were not seeing a bounce or any kind of real improvement. So yes, the employment picture looks better but I think you have to look at the types of jobs that are improving and other ones that are going to be declining unfortunately.
What is happening on the US dollar front which is currently gaining and the US treasury yields? Should we be looking at that along with what is happening in the stock market?
Yes, I think we definitely have to look at the Fed policy. The Fed has purchased an enormous quantity of bonds and we are looking at increased deficits and so it is going to be important to look at the macro data going forward.