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Month: December 2018

Stocks Bounce Back From Edge of Bear Market

Stocks Bounce Back From Edge of Bear Market

Throughout Wall Street’s December meltdown, analysts have been saying that markets were plunging despite plenty of evidence that the United States economy remains strong and corporate profit growth is healthy.

That argument finally found listeners on Wednesday, when early reports of a strong holiday-shopping season helped lift the S&P 500 by nearly 5 percent, its best day since 2009. The Nasdaq added 5.8 percent, and the Dow Jones industrial average rose just under 5 percent. That jump, over 1,086 points, represented the Dow’s best single-session gain ever, although a number of days have eclipsed that in percentage terms.

A substantial rise in crude oil prices added to the lighter mood, as did efforts from the White House to ease up on criticism of the Federal Reserve.

The rally continued in Asia, led by Japan, where stocks on Thursday opened 3.7 percent higher.

The rebound in the United States offered investors a much-needed reprieve from a decline that had picked up speed in December. Stocks had fallen for four consecutive days through Monday, and the drop had pushed the S&P 500 to within just a few points of a bear market — defined as a 20 percent retreat from its high.

Still, the S&P 500 is on pace for its worst annual performance since the financial crisis a decade ago and is only back to where it stood on Dec. 20. Plus, the move in prices Wednesday was most likely heightened by lighter-than-average trading volume during a holiday week.

But to some traders, the move upward finally made sense.

“Fundamentally you’ve got good growth here in the States, you have reasonable growth overseas, you’re going to have record earnings in 2019 and possibly in 2020 as well, you’ve got low inflation,” said Scott Wren, senior global equity strategist at the Wells Fargo Investment Institute. Before Wednesday’s steep rise, the market had fallen too far, Mr. Wren said, and it was ready to climb thanks to the underlying strength of the American economy.

The rally was broad-based. Only one stock in the S&P 500, Newmont Mining, fell.

Data from Mastercard showed that sales in the United States this holiday season grew at their fastest pace in six years, and investors flocked to the retail sector. Stock in the department store Kohl’s jumped over 10 percent, and shares of Amazon, which called its season “record-breaking” without offering financial details, rose more than 9 percent.

Oil prices, too, were on the move after Russia’s energy minister, Alexander Novak, told a Russian newspaper that the country would benefit from continuing to cooperate with the Organization of the Petroleum Exporting Countries on regulating production. American crude, the benchmark for oil prices, rose almost 9 percent to over $46 a barrel, and shares of large energy producers also climbed.

After leading Wall Street’s recent slide, technology stocks rebounded as well. Tech investors have had plenty of causes for concern. A slowing global economy could hurt sales, tensions are rising with China on manufacturing of devices, and privacy concerns are bringing the potential for regulation. Apple shares rose 7 percent, while stock in the semiconductor maker Advanced Micro Devices gained 7.5 percent and Facebook added more than 8 percent.

Bank stocks, which have taken the brunt of recent selling as worries grew that the United States economy was weakening, rose significantly.

The rally doesn’t mean that this year’s precipitous decline in stock prices is over. Signs of economic health that encouraged the buying are doing little to address one of stock investors’ primary concerns. They’re worried that the Federal Reserve’s decision to continue raising interest rates, even if at a slightly slower pace, will hurt the economy and corporate profits. Higher interest rates on bonds or even savings accounts make stock investments less appealing as an alternative.

The Fed announced an interest-rate increase last week and said it would continue to withdraw the support it had offered the economy in the wake of the financial crisis.

“The Fed is making a monumental mistake,” said Barry Bannister, the head of institutional equity strategy at the broker Stifel. “They do not realize how long and by how much they’ve tightened already, and until they back off the market’s going to have a very weak floor under it.”

Adding to volatility has been the possibility that President Trump would consider firing the central bank’s chairman, Jerome H. Powell, because he disagreed with Fed policy. Mr. Trump, who previously sought to hitch his political success to a rising stock market, has blamed interest-rate increases for the downturn on Wall Street.

White House officials insisted again that the president had no plans to fire Mr. Powell, news that reassured investors.

Kevin Hassett, the chairman of the Council of Economic Advisers, told reporters Wednesday morning that Mr. Powell’s job was “100 percent” safe. He echoed remarks by Treasury Secretary Steven Mnuchin and Mick Mulvaney, Mr. Trump’s incoming chief of staff, both of whom spent the weekend trying to persuade investors that the president did not plan to fire Mr. Powell. Those efforts had mostly backfired, in part because Mr. Trump continued to criticize his handpicked Fed chairman.

It also helped matters on Wednesday that Mr. Trump refrained from offering new criticism of the Fed, a marked difference from the days leading up to the Christmas holiday, when he railed against the central bank on Twitter and vowed to keep the government shut down for an extended period. In fact, for the first trading session in many days, Mr. Trump posted just one tweet: It was about his trip to Iraq.

Treasury yields rise after Fed hikes rates for the fourth time in 2018

Treasury yields rise after Fed hikes rates for the fourth time in 2018

U.S. government debt yields climbed higher on Thursday as investors digested the fourth rate hike this year from the U.S. Federal Reserve.

The yield on the two-year Treasury bond, the coupon maturity most sensitive to Fed policy expectations, rose four basis points to 2.6706 percent, while the benchmark 10-year Treasury note was two basis points higher at 2.7944 percent. Bond yields move inversely to prices.

On Wednesday, the Fed announced an increase in its benchmark interest rate by a quarter point to a target range between 2.25 to 2.5 percent, in a widely anticipated move.

The move marked the fourth increase this year by the U.S. central bank and the ninth since it began normalizing rates in December 2015. It came despite President Donald Trump’s tweets against rate hikes. On Monday, he said “it is incredible” that “the Fed is even considering yet another interest rate hike” amid the turmoil outside of the U.S.

On the data front, investors are likely to closely monitor Philly Fed manufacturing figures for December at around 8:30 a.m. ET, with the latest jobless claims data scheduled for publication at the same time.

Meanwhile, a four-week and an eight-week bill is set to be auctioned by the Treasury on Thursday. Announcements on three-month, six-month, two-year, five-year and seven-year notes are also expected.

Dow dives about 500 points to its lowest close since May

Dow dives about 500 points to its lowest close since May

Stocks fell sharply on Friday after weaker-than-expected data in China and Europe exacerbated concerns of a global economic slowdown.

The Dow Jones Industrial Average fell 496.87 points to 24,100.51, its lowest level since early May, led lower by declines in Apple and Johnson & Johnson. For the year, the Dow is now down 2.5 percent.

The S&P 500 dropped 1.9 percent to 2,599.95 — its lowest closing level since April — as the tech and health care sectors lagged. The broad index also closed down 2.75 percent for 2018.

The Nasdaq Composite pulled back 2.26 percent to 6,910.66. For the year, the tech-heavy index is now up just 0.11 percent. Friday’s losses also wiped out the gains for the week across the major indexes.

Friday also marked the first time since March 2016 that all major indexes closed in a correction, down at least 10 percent from their 52-week highs.

China reported industrial output and retail sales growth numbers for November that missed expectations. This is the latest sign shown by China that its economy may be slowing down. The data also underscored the rising risks to China’s economy as Beijing works to resolve an ongoing trade war with the U.S.

“The economic data continues to bear out growth is slowing,” said Tom Martin, senior portfolio manager at Globalt. “There is still a lot of positive positioning out there. As the data continues to slow, people are feeling less comfortable with that and start to sell.”

“Where we are is trying to measure how uncomfortable people are with their positioning,” Martin said. “There just hasn’t been any follow-through in any rally we’ve seen in the past few weeks. That’s very telling of the market.”

Industrial production in China grew by 5.4 percent for November on a year-over-year basis, the slowest pace in almost three years. Retail sales, meanwhile, grew at their slowest rate since 2003.

European shares also fell after the release of weaker-than-forecast data. The IHS Markit Flash Eurozone PMI index fell to 51.7 in December, its lowest level in four years. “New business inflows almost stalled, job creation slipped to a two-year low and business optimism deteriorated,” IHS Markit said in a release.

Stocks initially surged this week amid hopes the U.S. and China would be able to strike a permanent deal on trade. On Friday, China said it would suspend an additional tariff on U.S. autos. China also confirmed it would reduce a 40 percent charge on U.S. auto imports to 15 percent for 90 days.

But the uncertainty around the ongoing negotiations has kept investors on edge recently. Data from research service Lipper found that more than $46 billion were pulled out in a week from U.S. stock mutual funds and ETFs, the most ever.

“At this point, a lot of investors are very cautious heading into 2019,” said Yousef Abbasi, director of U.S. institutional equities at INTL FCStone. “There’s a lot of frustration among investors that have been whipsawed by this volatility.”

Volatility has picked up this quarter. This is the third decline of more than 500 points for the Dow in December, following two declines of that magnitude or greater in November and three in October.

Shares of Apple fell 3.2 percent after influential analyst Ming-Chi Kuo, of TF International Securities, slashed his iPhone shipment estimates by 20 percent.

Johnson & Johnson, another Dow member, fell 10 percent after Reuters reported the company knew about asbestos in its baby powder for decades.

The S&P 500 financials sector closed down 20.06 percent from its 52-week high, officially entering bear-market territory. The sector fell 1 percent on Friday as worries about global growth dented bank shares.