Thursday, January 21, 2016

‘Noon Swoon,’ Then Recovery That May Signal Market Turnaround

Soon after midday on Wednesday, panic selling seemed to be seizing the United States stock market.
The Dow Jones industrial average was down more than 500 points, and all the fears that have driven this year’s declines — including concerns that the world economy is slowing — seemed as potent as ever.
Then investors’ mood changed.
Buyers rushed in, sending the Dow up over 400 points. What could have been a rout ended up being just the sort of down day that investors have had to get used to this year.
The Dow closed off 249 points, or 1.56 percent, to 15,766.74. The Standard & Poor’s 500-stock index, a broader benchmark, fell 22 points, or 1.17 percent, to 1,859.33. The Nasdaq composite index ended barely changed, 5.26 points lower, or 0.12 percent.
And after spiking, the Vix index, which measures investors’ expectations of volatility and is known as Wall Street’s fear gauge, tumbled.
To some, the turnaround felt a little like the sort of cathartic turning point that can signal a bottom on the markets — at least for a time.
“The noon swoon today looked to me to be consistent with sort of important lows that I’ve seen over the years,” said Douglas A. Kass, a founder of Seabreeze Partners Management. “You had panic, fear and immobility on the part of many investors.”
The main reason that the analysts gave for their tempered optimism is that the global economy does not appear to be in as poor a shape as the stock market is suggesting. In other words, while many countries, including China and its $10 trillion economy, still face stiff challenges, the United States stock market now appears to already reflect such risks, these analysts say.
“It feels like we are discounting too much bad news ahead,” said Chris Rupkey, chief financial economist at MUFG Union Bank in New York. “On these sort of days, you want to go and look at how the economy is doing, and it appears that the financial markets are overreacting.”
In recent years, global stocks have at times sold off sharply without a clear, cataclysmic trigger. Instead, the cause has been concern that the global economy is faltering. In 2011 and 2012, Europe was the source of most fears. Then last year, China started to unsettle global markets, especially after its shock currency devaluation in August.
Still, investors have in recent years jumped back into the market after they have concluded that the world economy is not sliding into recession and that the global financial system is not about seize up as it did in 2008.
The markets, however, will have to rise by quite a lot to recover their recent losses.
The S.&P. 500 has slid 9.03 percent so far this year and is now 12.74 percent below the nominal high that it reached last year. After adjusting for inflation, the stock market is lower than it was in 1999.
And some markets are still flashing warning signals.
On Wednesday, for instance, investors sought the safety of government bonds. The yield on the 10-year Treasury note, which falls as its price rises, slipped to 1.99 percent, from 2.06 percent, the first time it has closed below the 2 percent threshold since October.
The tumbling price of oil has also persuaded investors to be cautious. Cheaper oil reduces costs for companies and consumers. But a falling oil price could also be a signal that companies require less oil, which in turn could be an early signal that the world economy is on the verge of decelerating.
And on Wednesday, oil prices resumed their slide; the price of a barrel of crude oil reached the lowest level since May 2003. Crude oil was down 6.7 percent, to settle at $26.55 a barrel in trading for February futures on the New York Mercantile Exchange.
Royal Dutch Shell warned on Wednesday that it expected its profit for the fourth quarter of 2015 to be about half of what it was in the comparable period a year earlier. In addition, traders see no signs of the oil glut easing, as Iran has permission to sell into the world markets now that sanctions have been lifted as part of a nuclear deal.
European stocks ended sharply lower on Wednesday. The Euro Stoxx 50 index was down 3.3 percent. The FTSE 100 in London closed the day down 3.46 percent. London stocks are now down more than 20 percent from their April high: a level analysts generally regard as a bear market. 
In addition to worries about China, investors have also grown concerned that economic overhauls in Japan championed by Prime Minister Shinzo Abe, called Abenomics, are faltering. Despite Mr. Abe’s pledges to increase economic growth, which were accompanied by a huge program of monetary easing carried out by the central bank, the Japanese economy continues to dip in and out of recession.
The trading action in the United States stock market contained some unexpected moves. Shares of Twitter, which have plunged in recent weeks, surged on takeover rumors, leaving the stock up 4.13 percent for the day.

Article online: http://www.nytimes.com/2016/01/21/business/international/us-stock-markets-dow-sp-global-indexes.html

No comments:

Post a Comment