2 Reasons Why the Market Correction May Continue
I, personally, am still bearish on the market. I have been predicting a market correction for a few months now and was advising investors to prepare for it by shorting overvalued companies. My bearish stance has been beneficial as most of my short calls have yielded double-digit returns. My short calls on the likes GoPro (GPRO), Fitbit (FIT), Ambarella (AMBA) etc. have been very successful and only a handful of my recommendations have had negative returns.
Moving forward, I expect the market correction to continue.
The U.S. dollar has gradually risen in value over the last few years and with the economic growth slowing down, the strong exchange rate will act as a headwind for many companies. American companies that generate a large portion of their revenue from the international market will suffer from the increasing strength of the U.S. dollar.
In addition, a strong dollar also has a negative effect the domestic tourism industry. The demand for U.S. tourism declines with the increasing strength of the dollar. All in all, amid slow economic growth, a stronger dollar is a big headwind for this earnings season.
Billionaire investors have been predicting a stock market correction as well. The likes Warren Buffett, George Soros, and Paul Johnson have been reducing their positions in the U.S. market for quite some time. The U.S. market has been moving up consistently since the financial crisis and many stocks are trading at an overvalued multiple. Hence, billionaire investors have been reducing their positions and I think investors should also follow them and tread cautiously.
The increasing strength of the U.S. dollar will act as a massive headwind going into the earnings season. Decline earnings will probably contribute to the ongoing market correction, and thus, I would advise investors to not hurry into buying stocks on the pullback. In my opinion, shorting overvalued stocks is still the best way for investors to profit from the correction.
Published on Jan 20, 2016By Ayush Singh