Talk about kicking the market when it’s down. This time, the boot is on the foot of the British finance minister.
He’s announced a new digital tax to hit up the big US tech stocks like Amazon, Google and Facebook.
The Brits want to claw back some of the money from the huge revenue these guys book in the UK. The tax is due to come in from April 2020. But the worry starts now.
Already, the US tech trade has been lagging in recent weeks. Now the concern here is that other countries will follow.
This is enough to drag down the amount that investors are prepared to pay up for these businesses.
That brings prices down – and hence the same is true for the big US indices like the S&P 500 and the Nasdaq 100.
You may not even own any of these companies directly. But the driving force behind the US bull market since 2009 has been these stocks. Can the market push higher if they don’t?
We’re going to find out. I’ve felt for a while that other sectors had to do some heavy lifting for the US market to make new highs.
But it’s not clear yet which sector has the muscle to do it. I’ve made the case for banks and energy. It’s not happening as of now.
One wonders if Donald Trump will soon be on the phone (or Twitter!) suggesting that American favours might be a shortcoming if this tax idea continues to spread.
It may even make him more conciliatory toward China. That’s the only big market left, and as of now, it’s off limits. Watch this space.
If we can’t get a strong lead from the big indexes, we’re going to find ourselves in a stock picker’s market. After all, consider the massive rise in passive investing over the last ten years.
This stems from the basic ‘one-way’ trade across the world since 2009: US tech stocks. Apple hit a trillion in market cap and Amazon did for a bit, too. It gets harder to shift the needle at these levels.
That means hunting for specific opportunities. They’re thin on the ground on the ASX right now – at least for short-term gains.
But they’re not COMPLETELY gone…
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Price spikes like this happen all the time
You’ve seen the headlines this month. The market is volatile. It’s down. You can list the worries as well as I can.
That didn’t stop Aussie gold stock BGL from doubling in price over the last month.
See for yourself…
Let me say right now that this is not a stock I’ve recommended or traded. I’m certainly not saying to buy it now after such a run.
I only highlight it to point out that there are always stocks – especially small cap companies like BGL – moving in the market, regardless of trade wars, higher interest rates or whatever issue you care to name.
I think we can expect more resource stocks to run. The Australian Financial Review reported recently that mineral exploration is at a two-year high.
This gives the explorers and drillers like BGL the money they need to go and find great deposits. And when they do…well, just look at the chart above.
It doesn’t have to be a gold stock…
Build up a watch list here
It might be a copper or oil junior or any of the other metals. But gold always attracts a lot of spending. That means a gold strike is more likely simply from the weight of financing.
There is an irony to this, because gold is fairly useless. The world economy can keep turning perfectly well without any more gold bars in an underground vault somewhere.
But hey, we’re just here to find stocks that go up. If the market likes gold stocks, go with it.
There are some big moves that can happen in the small cap sector. One of the stocks on my buy list was up 30% yesterday. That’s not a boast. It was down on our buy price previous to this.
But it does show you how volatile – and potentially profitable – this space can be. You get hard and fast moves all the time – in both directions.
You either need to trade the short-term moves or strap yourself in for the long journey of growing a business. The stock will certainly move all over the place over a couple of years.
But if you’re looking for short-term spikes, I suggest the junior resource sector is the one to watch over the next 12 months.