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Sale of Growth Shares Demonstrates Transition of Markets to New Cycle Stage

American indices were again under pressure at the end of the day, rewriting the minimums from May on the S&P500 index. According to the results of the day, the losses amounted to 0.7%, although the amplitude of fluctuations remains elevated, reaching 3.8% in just a few hours.

Spreading fixation of profit has put the quartet FANG (Facebook, Amazon, Netflix, Alphabet) in jeopardy, and took away from their total capitalization about $600 billion from the peak values. The main driver of the weakening on Friday and Monday were the Amazon shares, that lost over 14% after a weak earnings report.

At the same time, key indices are supported during recessions, and outside of the current weakening, the trend in the stock markets shifts. The growth shares, an excellent example of which is FANG, risk giving up leadership to income stocks with good earnings and dividends.

Income-oriented equities are the focus of the market as the economic cycle ages. The next phase may be the demand for countercyclical papers, which are presented by the companies of the military-industrial complex, manufacturers of medicines and foodstuffs. But it is not so easy to predict the exact time of this switch.

It should be noted that the purchase of indices on recessions in combination with strong macroeconomic data from the USA does not allow to speak about a large-scale sale, but only about the change of priorities among the investors.

The dynamics of Asian playgrounds implicitly confirms our idea in the morning on Tuesday. Index Nikkei has added 2.2% this morning. The futures on S&P500 have grown by 0.6% this morning, and the Japanese yen (a great barometer of the demand for risks) has lost 0.8%, pointing to the persistence of global investors’ thrust for the purchases of securities.

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This article was written by FxPro