In the recent months, the market has been through a roller coaster ride but has since recovered from it. Additionally, we have seen some softness in earnings that were released this quarter.

But traditionally, shares tend to perform better in the 4th quarter of every year. This leads to one question: Should we sell? This article will be covering three points by market watchers on why we should sell before 4Q15 ends.

1. Rate Hike May Stunt Growth

US markets have been in the longest bull run since WWII as numerous quantitative easing (QE) and near zero interest rates have been driving the market. Since QE ended 13 months ago, S&P 500 has only grown by 6 percent. The main driver in the market was the “easy money” from the Federal Reserve.

But this growth might stop once interest rates have been raised. According to Jeff Gundlah of Doubline Capital, the US economy is too fragile to withstand the rising of the interest rates. Gundlah expressed that with declining profits from US firms, it looks a lot like the pre-financial crisis US economy.

2. Overvalued Dividend Stocks

Source: Snapshot of SPH, Bloomberg

Source: Snapshot of SPH, Bloomberg

Record low interest rates caused yield driven investors to seek alternatives from bank deposits and government securities. Tempted by yield, many of these fixed-income investors turned their sights to dividend stocks and REITs which pay a higher yield. The surge in investors snapping up dividend stocks has driven up prices.

Now, many of these dividend stocks are trading at ridiculous price level. When dividend stocks are trading at price-earnings (PE) of growth stocks, it shows that they are overvalued. At a point of time, investors will realize they are overpaying and will be selling dividend stocks in favour of fixed income products when interest rises.

3. Weakness in Gold


Source: Snapshot of SPH, Bloomberg

Gold is in its third consecutive year of loss and has lost more than eight percent year to date (YTD). However, the precious metal is far from reaching its buying opportunity. Gina Sanchez of Chantico Global says that the weakness in gold will continue with or without the interest rise.

It is important to note the following three points that suppress gold prices:

  • Recovering economy
  • Higher interest rates
  • Stronger dollar

Among these three, we can expect higher interest rates in the near term and are seeing a stronger dollar. As such, gold is expected to lose more grounds rather than face a rebound.