Let me start off with the kind of accelerated selling that we saw last night. Is this purely uncertainty, seasonal nervousness as we head into the election season and the coronavirus resurgence? Are we looking at something bigger here?
Fundamental, that was the reason. But there is also the fear that flu was going to come back, there was going to be rotation out of tech, out of growth into value. That was the general feeling but suddenly the market realised that the Fed stimulus was not going to happen. This is very uncertain and so all the cyclicals and all the retail, retailers, airlines, energy stocks saw a sellout. There was also a fear that Covid was coming back in Europe and could see a resurgence in the US as well. Uncertainty over election results and the death of the Supreme Court Justice Ginsburg added another layer of volatility and uncertainty. But I do not think it is the beginning of something major. Tech stocks came back a bit towards the end of the day. They will retain their leadership. Apple and Microsoft showed that they still have some strength. So the rotation is not going to happen. It is going to be delayed and it is still going to be growth over value for a while.
If the recovery from March is anything to go by, I would say we shall conquer this dip as well. The question is what do you buy? Do you buy more of the same stocks that have recovered most since March or do you bet on newer horses this time around?
You have to be really picky in your stocks selection and look for companies that have good balance sheets. If you are looking at a turbulent outlook, you need companies that can sustain this up and down. You really do not want to chase very stretched valuations but there are lots of companies out there and especially in this environment, the work at home companies are still very much in demand. You saw that towards the end of the day on Monday where all those stocks came back to life. You really have to pick your stocks at this point. Do not buy indiscriminately. But on a fundamental basis, companies with good balance sheets are the way to go.