January 31, 2018.
Stocks Tumble, Bonds No Haven as Selloff Worsens: Markets Wrap
The Dow Jones Industrial Average tumbled 362 points, helping to send U.S. stocks to the biggest two-day decline since May, while yields on benchmark government bonds touched April 2014 highs as caution crept into markets after one of the best starts to a year in recent history. Screens flashed red across most asset classes, with investors on edge ahead of a slew of earnings, a U.S. rate decision, the president’s address to Congress and major economic data. All major U.S. equity indexes sank a second day, with investors pocketing profits from a four-week rally that greeted 2018. The 10-year Treasury yield pushed above 2.73 percent, the highest since April 2014. Commodities retreated, led by crude and industrial metals. Gold turned lower, while the dollar fluctuated. Equities took a series of blows that added to the selling. MetLife Inc. headlined a series of disappointing earnings, dampening enthusiasm over tax cuts. News that Amazon.com, JPMorgan Chase and Berkshire Hathaway plan a joint unit that may redefine health-care jolted that sector to the steepest drop in more than a year. Apple Inc., the world’s largest company by market value, sank to a three-month low amid reports of a government inquiry and as concern mounts that its latest iPhone isn’t selling briskly. Energy producers slumped with the price of crude.
Signs of Old Age Abound in a Bull Market Closing In on History
Two days of violent price action in U.S. stocks and now everyone’s worried the party’s over. It’s been a long celebration. In a little more than a year since Donald Trump was elected president, the S&P 500 Index has yet to have a down month, and $8 trillion of equity value has been created. Looking around, you could be forgiven for thinking it’s gotten a little extended — that we’re closer to the end than the beginning. This week has seen the heaviest selling since May as investors questioned the rally’s staying power.
Euro-Area Inflation Slowdown Highlights ECB’s Uphill Battle
Inflation in the euro area slowed at the start of the year, highlighting the hurdles faced by the European Central Bank as it attempts to foster price growth in a region still beleaguered in places by high unemployment. Consumer prices rose 1.3 percent in January, the European Union’s statistics office said on Wednesday. The reading exceeds the median forecast of 1.2 percent in a Bloomberg survey but is below December’s rate of 1.4 percent. Just minutes before the report, Executive Board member Benoit Coeure said inflation would “only very gradually” converge to the ECB’s goal of close to but below 2 percent, justifying continued stimulus. While economic growth in the 19-country region is at its strongest in a decade and joblessness has declined, price pressures have failed to pick up to a similar extent despite unprecedented efforts by the ECB. President Mario Draghi said last week that developments were still heavily reliant on monetary support, arguing that it’s too soon to discuss winding down asset purchases later this year. In the euro area, the “labour-market recovery is still a few years behind other advanced economies like the U.S. and the U.K.,” said Jack Allen, an economist at Capital Economics in London. That means “domestic price pressures are going to build only very slowly, core inflation will rise only very slowly, so the ECB is going to be very cautious about normalizing monetary policy.” Core inflation, which strips out volatile elements such as food and fuel, nudged up to 1 percent in January from 0.9 percent. That rate hasn’t been near 2 percent since 2008.
Warnings on Correction in Asia, Hong Kong Stocks Grow Louder
It’s time to take some money off the table. That’s according to strategists across Wall Street, who say a pullback in Asian equities is imminent. Morgan Stanley is eyeing a “meaningful” dip in the Hang Seng Index within weeks, while Goldman Sachs Group Inc. says the MSCI AC Asia Pacific excluding Japan Index could drop more than 10 percent. Both gauges are enjoying one of their longest bull runs on record, entering its 717th day. While there’s been no shortage of warning signs, with most technical and valuation metrics flashing sell, investors have been reluctant to cash out. The region’s resilient economic growth, rebounding corporate profits and relatively low multiples have been enough to sustain the rally, and are likely to attract dip buyers when markets do fall, the strategists say. “Signs of overheating are emerging, but our macro and earnings cycle analysis indicates that markets remain well-supported by fundamentals,” Goldman Sachs strategists including Timothy Moe wrote in a Tuesday note. “We remain strategically bullish, while acknowledging that a trading correction is possible given how long markets have rallied.”