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A 2 Apple: The Hunt for Red October

November 5, 2018

“October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.”

— MARK TWAIN

“Some people feel the rain… others just get wet.”

— BOB DYLAN

Maybe it’s because the month ends with witches, goblins and ghosts, but October has a reputation as being scary for investors. For those who expected a “Red October,” the tenth month of the year didn’t disappoint, delivering the worst monthly performance since the Financial Crisis.

The S&P 500 was down 6.8% for the month, which was nothing compared to NASDAQ being off 9%. According to Lipper, the average small cap growth manager lost nearly 12%. Ironically, economic data remained robust with 250,000 new jobs created in October, hourly wages rising 3.1% — the best since 2009 — and unemployment reaching at a fifty year low at 3.7%. However, this was bad news for short term investors who feared the Fed’s continued drumbeat of raising rates.

The most spooky to tech investors was the median drop of 21% of FANG AM (Facebook, Apple, Netflix, Google, Amazon and Microsoft) since the beginning of September. These six stocks have contributed 37% of the rise of the S&P 500 since 2013. Alibaba and Tencent (two thirds of the Chinese “BAT”), which accounted for 28% of the rise of the Chinese markets in the past five years, have fallen precipitously from their elevated perches. Add that up and $900 billion of market value has been lost in these eight stocks in the past two months. To put the significance of this carnage in perspective, this is greater than the entire market value of all eight companies a decade ago.

 

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