A rally in recently battered commodities and banking shares lifted US stocks, but traders and analysts groused that they didn’t expect the latest bounce to last.
The gains snapped a five-session losing streak for US stocks and came on the heels of a particularly rough day for global stocks.
Markets around the world fell to multiyear lows on Thursday as investors fled stocks and scrambled to the perceived safety of gold and government bonds, sending the yield on the 10-year US Treasury note to its lowest level since May 2013.
Now nearly halfway through the month of February, traders and analysts are increasingly questioning when the stock market turmoil, which many believed would be short-lived, will end.
“The magnitude and the breadth of the selloff is very surprising,” said Bart Geer, portfolio manager of the BlackRock Basic Value Fund. “I’ve been spending a lot of time recently trying to figure out what it is the market is so negative about that I’m not quite so negative about.”
So far this year, the slowdown in China’s economy, low oil prices and their implications for the energy sector and the debt market, and whether central bank stimulus efforts can support economies around the world have haunted stocks. But analysts hoped the relative health of the US economy, as exhibited by better-than-expected quarterly earnings, could help spark a rebound in US stocks.
That rebound has yet to materialise. After falling 5.1 per cent in January, the S&P 500 has tumbled another roughly 4.2 per cent so far this month.
With more than three-quarters of companies in the S&P 500 reporting, about half have reported sales that beat analyst expectations, according to FactSet. Earnings are on pace to decline 3.7 per cent from a year prior, which is less than the 4.7 per cent decline anticipated as of December 31.
“The market was looking for earnings season to be a catalyst, a reason to step in and buy,” said Jonathan Corpina, senior managing partner at Meridian Equity Partners.
“I don’t think it disappointed, but it didn’t help.”
Instead, stocks around the globe have continued to track the rise and fall of the price of oil.
“Financial markets are pricing in a greater chance of recession in the next 12-18 months,” said Alex Dryden, global market strategist at J.P. Morgan Asset Management. While he expects economic growth to remain modest this year, “scepticism is settling in over how much more central bankers can do” if global growth stalls, he added, prompting investors to avoid risk.
Data showing that US consumers increased their spending in January contributed little to the stock market’s gains, traders said. Retail sales rose 0.2 per cent from the prior month, the US Commerce Department said Friday.
Investors were also looking ahead on Friday to how Chinese stock markets would reopen on Monday after having been closed for the Lunar New Year holiday.
As Chinese markets reopen, US markets will be closed on Monday for the Presidents Day holiday.
A close adviser to Prime Minister Shinzo Abe said that the Bank of Japan may call an emergency meeting to undertake additional monetary easing if financial markets remain turbulent.
“A strong yen and negative interest rates is a bad marriage,” said Didier Duret, chief investment officer at ABN AMRO private banking, noting that the pain in Japan could raise fears about the impact of negative interest rates in Europe.
Still, he doesn’t believe a global recession is coming and views the two economies as fundamentally distinct.
