Amid Volatility, Sell-Off Eases on Wall Street


Before long there was panic that stock values had peaked, that a long-awaited correction was underway, and that investors would suffer even bigger losses if they waited too long to dump their holdings. The result was Monday’s sell-off. (See how Monday’s plunge compares to previous bad days on Wall Street.)

But Tuesday’s results put a brake to the slide, at least for now.

While President Trump has regularly pointed to increasing share prices as a sign of a strengthening economy, Vice President Mike Pence on Tuesday largely dismissed the latest falls as simply representing “the ebb and flow” of stock markets. Mr. Pence, who was speaking to reporters as he headed to Asia, said that the United States economy remained strong, pointing in particular to record-low unemployment and signs of accelerating wage growth. (Here’s a look at how Mr. Trump has tied his political fortunes to the stock market.)

The Treasury secretary, Steven Mnuchin, said it was possible that algorithmic trading programs were partially responsible for recent volatility in the stock market. “I have heard from others that it has played a role, as there’s more programmed trading, this tends to have volatility in both directions,” he said Tuesday, adding that market participants are acting in an orderly fashion and there are no liquidity problems.

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On Tuesday, investors in the United States appeared more inclined to view the economic news in a somewhat more favorable light.

• General Motors shares rose 4 percent after the automaker reported strong demand for its pickup trucks and S.U.V.s. And chip maker Micron Technology rose roughly 8 percent on favorable earnings news and upgrades from Wall Street analysts.

• Economic data suggested that the American consumer, a key player in an economy where consumption accounts for roughly 70 percent of economic activity, remains robust. The United States trade deficit surged in December as imported consumer goods rose sharply on solid consumer demand.

• Yields on the 10-year Treasury note rose. Spooked investors had bought supersafe government bonds in recent days after being startled by the market sell-off, bringing yields lower. So, the rise in yields suggest investors are regaining their nerve. The United States dollar rose.

(The Upshot looks at economic data that paint a more optimistic picture than the stock market.)

But pockets of volatility remain. A measure of expected market turbulence, the CBOE Volatility Index, known as the VIX, has risen sharply. It has hit its highest level since 2011, rising more than 170 percent in February alone.

The brighter sentiment in the United States came as a relief after Monday’s rout spread to foreign markets overnight. Japan’s Nikkei 225 fell 4.7 percent and Hong Kong’s Hang Seng index dropped 5.1 percent.

In European trading, markets erased some of their losses after the start of trading in the United States. The FTSE 100 in London ended the day down 2.6 percent, and the DAX in Frankfurt closed 2.3 percent lower.

In Europe, a decade of extraordinarily low interest rates is coming to an end. The European Central Bank is winding down the money-printing program known as quantitative easing and could begin raising its benchmark interest rate — currently zero — next year.

That would have two impacts on the stock market. For one, companies — some of which have been able to issue bonds paying little or no interest — would have to pay more to borrow in the future, which could cut into profits.

Biggest Falls in the S.&P. 500

When placed in the context of the largest drops in the S.&P. 500 since 1967, Monday’s 4.1 percent fall weighs in as the 39th largest.





50 largest one-day percentage drops

in the S.&P. 500 since 1967

–20.5

–9.0

–8.9

–8.8

–8.3

–7.6

–6.9

–6.8

–6.8

–6.7

–6.7

–6.1

–6.1

–6.1

–5.8

–5.7

–5.3

–5.3

–5.2

–5.2

–5.0

–4.9

–4.9

–4.8

–4.8

–4.7

–4.7

–4.7

–4.6

–4.5

–4.4

–4.4

–4.3

–4.3

–4.3

–4.2

–4.2

–4.2

–4.1

–4.0

–4.0

–3.9

–3.9

–3.9

–3.9

–3.8

–3.8

–3.8

–3.8

–3.7

Oct. 19, ’87

Oct. 15, ’08

Dec. 1, ’08

Sept. 29, ’08

Oct. 26, ’87

Oct. 9, ’08

Oct. 27, ’97

Aug. 31, ’98

Jan. 8, ’88

Nov. 20, ’08

Aug. 8, ’11

Oct. 13, ’89

Nov. 19, ’08

Oct. 22, ’08

Apr. 14, ’00

Oct. 7, ’08

Jan. 20, ’09

Nov. 5, ’08

Nov. 12, ’08

Oct. 16, ’87

Nov. 6, ’08

Sept. 17, ’01

Feb. 10, ’09

Sept. 11, ’86

Aug. 4, ’11

Sept. 15, ’08

Sept. 17, ’08

Mar. 2, ’09

Feb. 17, ’09

Aug. 18, ’11

Aug. 10, ’11

Apr. 14, ’88

Mar. 12, ’01

Apr. 20, ’09

Mar. 5, ’09

Nov. 30, ’87

Nov. 14, ’08

Sept. 3, ’02

Feb. 5, ’18

Oct. 2, ’08

Oct. 25, ’82

Aug. 24, ’15

Oct. 22, ’87

May 20, ’10

Oct. 6, ’08

Aug. 27, ’98

Jan. 4, ’00

July 19, ’02

Sept. 22, ’08

Nov. 18, ’74

50 largest one-day percentage drops in the S.&P. 500 since 1967

–20.5

–9.0

–8.9

–8.8

–8.3

–7.6

–6.9

–6.8

–6.8

–6.7

–6.7

–6.1

–6.1

–6.1

–5.8

–5.7

–5.3

–5.3

–5.2

–5.2

–5.0

–4.9

–4.9

–4.8

–4.8

–4.7

–4.7

–4.7

–4.6

–4.5

–4.4

–4.4

–4.3

–4.3

–4.3

–4.2

–4.2

–4.2

–4.1

–4.0

–4.0

–3.9

–3.9

–3.9

–3.9

–3.8

–3.8

–3.8

–3.8

–3.7

Oct. 19, ’87

Oct. 15, ’08

Dec. 1, ’08

Sept. 29, ’08

Oct. 26, ’87

Oct. 9, ’08

Oct. 27, ’97

Aug. 31, ’98

Jan. 8, ’88

Nov. 20, ’08

Aug. 8, ’11

Oct. 13, ’89

Nov. 19, ’08

Oct. 22, ’08

Apr. 14, ’00

Oct. 7, ’08

Jan. 20, ’09

Nov. 5, ’08

Nov. 12, ’08

Oct. 16, ’87

Nov. 6, ’08

Sept. 17, ’01

Feb. 10, ’09

Sept. 11, ’86

Aug. 4, ’11

Sept. 15, ’08

Sept. 17, ’08

Mar. 2, ’09

Feb. 17, ’09

Aug. 18, ’11

Aug. 10, ’11

Apr. 14, ’88

Mar. 12, ’01

Apr. 20, ’09

Mar. 5, ’09

Nov. 30, ’87

Nov. 14, ’08

Sept. 3, ’02

Feb. 5, ’18

Oct. 2, ’08

Oct. 25, ’82

Aug. 24, ’15

Oct. 22, ’87

May 20, ’10

Oct. 6, ’08

Aug. 27, ’98

Jan. 4, ’00

July 19, ’02

Sept. 22, ’08

Nov. 18, ’74





At the same time, higher interest rates are making bonds more attractive as an investment, prompting investors to shift some of their money out of stocks.

“Gradually the realization is dawning that the era when monetary policy provided unlimited support to markets is coming to an end,” Michael Heise, chief economist of German insurance giant Allianz, said in a note to clients Tuesday.

(More on how the global economy is bracing for shocks as monetary policies change.)

An improving economic outlook has also meant European unions are demanding relatively hefty pay increases after years in which they settled for stagnant wages in return for job security. The IG Metall union in Germany, which represents workers at big companies like Daimler and Siemens, negotiated a new contract early Tuesday that provides for an effective annual pay increase of more than 3 percent through early 2019.

Christian Hille, a senior fund manager at Deutsche Asset Management in Frankfurt, said that much of the selling was by investors compelled to move out of stocks for technical reasons — for example, because they manage a fund that has an obligation to limit losses to 2 or 3 percent.

“We think that the movement is a bit overdone,” said Mr. Hille. He predicted that stock markets would eventually settle down because of the strong global economy.

“We are seeing a synchronized global upswing, which will be supported by U.S. tax stimulus,” he said. “We expect higher corporate profits.”

Analysts digesting the numbers from Asia said they did not expect the selling to let up anytime soon.

“This is the beginning of a more meaningful setback in a market that was, at least from the nonfinancial sectors, very overvalued and there was a lot of euphoria,” said Jonathan Garner, an Asia and emerging markets equity strategist at Morgan Stanley.

“I don’t think this is a ‘one-day’ that finishes today,” he added.

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