Keep the Flak Jacket On

The first line of yesterday’s market update to members of my trading service Retirement Trader was ‘Is it safe to take the flak jacket off?’

After seeing what happened overnight in the US, the answer is clearly ‘No!’

It’s not every day you wake up to the Nasdaq down over 6%.

I have given you plenty of warnings recently about the waning momentum, pointing out last week that the weekly trend was about to turn down in the S&P 500 and Nasdaq.

But the S&P/ASX 200 [ASX:XJO] continues to defy gravity.

We have already seen plenty of bloodletting in the smaller end of the market in Australia.

When trouble hits, the knee-jerk reaction is to pile into banks and other defensive sectors, such as consumer staples, infrastructure, and insurers.

So rather than an exodus, we see a rotation that allows the index to tread water.

The Japanese Nikkei and South Korean Kospi index are both down over 6% today. As I’m sure you’ve heard, the AI trade is coming under pressure, with fears the Democrats will dial back the rollout of data centres.

That will mean data centres already in the pipeline could be the big winners. Perhaps the sell-off in neoclouds could be a buying opportunity, similar to the opportunity in cybersecurity stocks during the Saaspocalypse.

Commodities are flying all over the place, with oil prices nudging US$117 last week before collapsing to a low of US$93 this week.

That’s a 20% swing in the oil price in one week! And yet no one bats an eyelid because we are getting used to the madness.

I was concerned about what would happen to gold if it fell below US$4,000 last week. It fell US$150 that night but then changed course and jumped US$272, or 7%, after the midterms!

Volatility is back.

Capital preservation is the name of the game right now.

The dust will settle at some point, and then I’m sure there will be plenty of great opportunities on offer.

Charlie and I have a look at the huge moves sweeping the markets and consider what comes next.

Closing Bell