By Joyce Yu
Heading into August, analyst warn that stocks market is expected to get volatile next month and the biggest sell-off since February is coming.
Volatility increases in the August of midterm election years by about 34% over other Augusts, data shows. “I think volatility is likely to pick up, because it normally does, and I think that the trade tensions are still out there and nothing was really resolved with Europe,” said Samuel Stovall, chief investment strategist at CFRA.
“It’s not a great month for equities,” said Paul Hickey, founder of Bespoke. August, which often started off with a slow and steady decline through the first 10 days of the month since 1983, before stabilizing, had even poorer performance in recent years, Hickey told CNBC.
Wall Street is on track to close out July in positive territory, with the S&P 500 gaining about 3% for the month. Nasdaq’s rally seems to have slowed down, on the other hand, gaining 1.6% for the month, just half of the S&P. Social media stocks especially have been whacked of late. $120 billion was wiped out from Facebook’s market value on earnings last week, marking the biggest one-day loss ever for a single stock.
Institutional investor Morgan Stanley believes a major correction is on the horizon for some high-flying technology stock. “The weaker earnings beat from several Tech leaders and outright misses from Netflix and Facebook were simply additional support for our [defensive] call,” said Michael Wilson, chief U.S. equity strategist, in a note to clients.
“We think a coming correction will be biggest since February, although it could very well have more of a negative impact on the average portfolio if it is centered on Tech, Discretionary, and small caps,” the note said.
Another tech giant Apple will release its earnings after bell today. Analysts expect Apple to sell 42 million iPhones during the quarter, down from 52.2 million in the prior quarter. The focus of this quarter’s earning report, however, will be more on customer demand for the next generation of iPhone models which is generally launched in the second half of September.
Despite lukewarm iPhone growth, Apple is generating billions in sales with supplemental services for the iPhone, and other devices, including the App Store, Apple Pay and AppleCare. Market expects Apple to report $52.3 billion in sales for the quarter, and $2.18 earnings per share.