Where is the market headed?

An incredibly interesting observation comes from the Korean stock market, where stocks have been crashing rapidly. While they previously experienced a massive upward surge, the speculative bubble in semiconductor and artificial intelligence stocks has now burst in that region.

Interestingly, the forward price-to-earnings ratio at the peak of that bubble was just 8, and it has now been further reduced to 5 times earnings. Effectively, on a price-earnings basis, a true bubble never actually existed, yet it was created and subsequently destroyed. Earnings multiples are consistently failing to explain how and when to buy or sell because the overall base of money is expanding so much that earnings are no longer able to provide an accurate judgment for investment decisions.

Shifting focus to the broader global landscape, markets faced another difficult start to the day. President Trump has informed the Senate that a full-blown attack is underway. An address to the nation is scheduled for Thursday at around 9:00 PM US time, where he will most likely formally declare war on Iran. Consequently, situations have become highly volatile and messy, with global oil prices rising on a day-to-day basis.

Market Overview

The Indian market seems to be tracking this geopolitical development in its stride so far. For the second consecutive day, there was a gap-down opening, but the overall decline remained reasonably contained. While other Asian markets were falling very hard, the Indian market remained quite stable.

Broader Market Indices

The Nifty ended the day down just 0.66%, showing very little significant movement. Other major indices, such as the Nifty Next 50 and the Midcap 150, stayed well within a half-percent drop. However, small caps felt more pressure, falling 1.08%, while the Bank Nifty dropped 1.15%.

Heat Maps

The Bank Nifty faced a steeper decline primarily because bond yields are rising very dramatically across the globe. This movement signals that it will be highly difficult for interest rates to come down anytime soon. In fact, if yields stop rising, interest rates will have to rise instead.

This challenge is already being priced into the market, reflecting the imminent difficulties arising from high oil prices and subsequent interest rate pressures. As a result, major finance stocks like HDFC Bank, State Bank of India, and Kotak Bank were all in the red. The automotive and infrastructure sectors also ended the day in negative territory.

Aside from a few resilient names like Bharti Airtel, Sun Pharma, and some gains in TCS, there was hardly any green on the board.

Within the Nifty Next 50, Adani stocks rallied hard, while Divi’s Lab and Jindal Steel performed reasonably well. Certain capital goods stocks, including ABB, CG Power, and Siemens, also managed to hold steady. Beyond these exceptions, the market map presented an entire sea of red, with real estate stocks taking the hit directly on the chin.

Top Gainers & Losers

Sectoral Overview

In terms of sectoral trends, the defensive pharma sector gained 1% today, and metals also managed a half-percent gain. No other sectors found positive territory. The largest losses were seen in real estate, which fell 2%. It is worth recalling that despite today’s drop, real estate is still up 2.7% over the past week, indicating that this is a continuation of a correction. PSU banks dropped 1.9%, autos declined 1.6%, and both the tourism sector and the Nifty Bank index fell by more than 1%.

Sector of the Day

Nifty Realty Index

Looking at cumulative figures for the past month, the real estate sector has flown high, gaining almost 19%. Tourism stocks have advanced 7%, and pharma is up 6%. The remaining sectors have stayed largely stagnant, hovering within a few percentage points.

Companies like Lodha Developers, Godrej, Anantraj, Brigade, and DLF caused the minor blip in the real estate sector today, which comes as no surprise given how hard the real estate index has been flying recently.

U.S. Market Update

The previous session in the US markets also ended on a down note. The S&P 500 lost 0.7%, the Dow Jones dipped 0.2%, and the Nasdaq fell 1.88%. The Russell 2000, representing the small-cap segment that was hit the most, declined 0.83%.

The top gainers in the US included Intuit, Thomson Reuters, Diamondback, Workday, and Automatic Data Processing, all gaining between 3% and 5%. Conversely, stocks that had been running very hard recently faced steep corrections; AppLovin, SanDisk, Astera Labs, Marvell Technology, and ARM Holdings dropped between 7.5% and 12%.

The heat map from the NASDAQ 100 clearly shows that Intel, ARM, ASML, and AMD, all prominent names in the AI and semiconductor space, were thrashed very badly. SpaceX continues to trade below its IPO price, and Tesla dropped 3%. With AMAT, Meta, and Google also in the red, there were very few places to hide in the US markets, delivering a significant shock to the system. Most market participants had assumed this war was behind us, but it has returned with a vengeance, and nobody knows how ugly it might get going forward.

Tweet Of The Day

The tweet of the day features an illuminating comparison between the S&P 500 and Berkshire Hathaway stock. The first chart displays the 10-year returns, revealing that Berkshire and the S&P 500 delivered almost identical returns over the last decade.

However, the second chart highlights the past year, showing Berkshire down 8% while the S&P 500 has surged 32%. Even the top fund manager in the world is experiencing a highly challenging period, with a massive 40% performance gap opening up within just a year and two months.

If the broader market does not come down, this underperformance could widen even further because Berkshire is currently sitting on enormous amounts of cash, with a third of their total portfolio allocated to US Treasuries. This situation demonstrates that even the world’s best fund managers can experience rough patches when market dynamics shift unexpectedly. Fund management generally boils down to two distinct approaches: investing by prediction or investing by following the market.

By choosing to follow the market, an investment strategy never strays too far from actual market performance. While a trend-following approach may not outperform the market at every single moment, it ensures that a portfolio avoids the stark contrarian situation currently being faced by Berkshire Hathaway.

When certain sectors fly upward and a manager chooses to avoid them or declares the market too hot to participate, sitting in cash via tactical allocation can cause massive underperformance. Because of this, the core philosophy at Weekend Investing has always been to remain aligned with the market, moving upward when the market rises and adjusting downward when it falls. This represents a much simpler, highly effective way of navigating volatile financial markets.