Friday's continuation of Thursday's selloff, based on East Asia deflation worries, occurred IMO because the markets began to think that the US market in general and the tech sector in particular is not so invulnerable to East Asian deflationary pressures as it at first wanted to believe.
The downgrade of the semi equipment makers is a key case in point. Overcapacity in that industry, due to overcapacity among dram and other commodity (or semi commodity) chip makers (flash memory, programable logic devices, etc.) has been rising and apparent for some time. It has been partially ignored in the raging US bull mkt environment. Leaders like AMAT were regarded as invulnerable, despite history of vast price and large earnings swings. Now the likely East Asian sharp investment slowdown in the wake of their devaluations and deflationary woes, is leading to sharpened focus on areas where they might cut back...such as American semiconductor capital equipment, catapillar, etc.
East Asia's continuing meltdown has fired a massive warning shot...that gets people back to looking at fundamentals, and no longer just believing in the inevitability of the bull in all areas of recent strength, regardless.
The question now becomes...does the market decide that earnings slowdowns and even flatness for the intermediate term is isolated to a few areas, or more pervasive throughout technology, and other capital goods sectors?
Doesn't mean a bear market here. Does mean a much more discriminating market I think. And a focus that looks increasingly to the symptoms of deflation...flat to lower earnings for a somewhat extended period...rather than inflation and resultant overall interest rate slamming of the brakes...as the real threat.
I expect that next week will see the usual remedying of the "baby out with the bathwater"... stuff whose earnings look in tact and relatively assured will recover, sometimes quickly. Other stuff less so, and trending lower for a while. IMO.
Regards, Doug |
