Will the Stock Market Crash? Natural Resources, Industrials, and International Markets are Already in Bear Market Territory

The S&P 500 index broke below its trading range Friday, which is the latest sign of the deterioration of the U.S. stock market:

Investor pessimism is driven by the slowing growth of the global economy, rising interest rates, trade wars, the Brexit negotiations, and several other geopolitical factors. We think that we are at an inflection point and crash-like conditions can develop quickly.

A worrisome sign for us is the lack of sector leadership. Gold is the only sector that shows a positive return for the last three months:

While the Fidelity Select Gold Fund (FSAGX) has outperformed recently, the chart does not show a bullish price pattern yet. FSAGX will have to break above the long-term trendline to start a new bullish trend:

On the other hand, the chart patterns of the weakest U.S. sectors, such as energy and industrials, are very negative:

In a previous article, we described the turmoil in global markets. European and Emerging Markets continued to deteriorate since then and do not offer investment opportunities at this point in our view:

 

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Aftermath of the Stock Market Correction: Defensive Sectors Lead the U.S. Market; Bear Market Worsens for International Equities

Rising interest rates and hawkish comments by the Fed caused a wave of deleveraging on a global scale. Investors pulled out rapidly from equities to reduce exposure, which caused the benchmark S&P 500 index to drop below its 100-day moving average:

The bear market in international equities, both Europe and emerging markets, accelerated to the downside:

Clearly, smart money is rotating into defensive sectors, while technology, cyclicals, and materials continue to underperform.

From the technical perspective, utilities look the best. The Fidelity Select Utilities Fund (FSUTX) made a new high yesterday, and we would not be surprised to see more investment money flowing into this defensive sector:

The relative strength for the telecom and the healthcare sectors is also positive:

The materials and the semiconductor sectors stand out as the weakest performers in 2018:

 

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Extreme Market Conditions Are Developing; Investors Must Be on High Alert to Avoid the Next Crash

The panic selling of gold continued again today and the Fidelity Select Gold Fund (FSAGX, last change: -4.31%) was the worst performing fund in the FidelitySignal.com daily survey. In addition, multiple equity sectors “rolled over” in recent sessions and are in danger of entering a bearish downtrend. These events, taken together with the bubble-like rise of the Japanese stock market point to a highly unstable market environment. Unless the equity markets stabilize in the next few sessions, we see an increased probability of a serious correction or even a stock market crash.

 

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King Dollar

Broad-based selling continued around the globe today due to increasing worries about the resolution of the Euro debt crisis. With almost all sectors and international markets dropping sharply there was no place to hide, with the exception U.S. treasury bonds.

However, as the bull run in treasuries is approaching an overbought condition and the dollar strengthening against all major currencies, that safest investment for individual investors may be dollar denominated money market funds.

The Fidelity Europe fund (FIUEX) dropped a whopping 3.72% today on renewed Euro debt worries and is approaching its support level.

 

Mutual fund screens are provided by FidelitySignal.com