Gone Dark. Markets are closed on Wednesday, but Tuesday’s bloodbath continued, with losses around the world on fading hopes for a resolution to the U.S.-China trade dispute. In today’s Intraday Update, we…
- …watch global markets slide;
- …review the trade and Treasury factors spooking investors; and
- …look for signs of hope.
Worry & Wait
While U.S. markets are closed on Wednesday, worries about American trade with China continue to weigh heavily on the world stage.
Asian markets are already closed, with Japan’s Nikkei Stock Average ending down 0.5%, while Hong Kong’s Hang Seng Index fell 1.6%. The Stoxx Europe 600 was down 1.1% in recent trading. Perhaps if U.S. exchanges had been open, we might have regained some ground. Futures pointed to a 0.6% rise for the
and a 0.5% gain for the
Dow Jones Industrial Average.
As it is, however, global markets remain in the red.
Words like market ‘selloff’, ‘crash’, ‘meltdown’, and ‘correction’ have been bandied about by traders and analysts in ways that can make investors cringe. Here’s what you need to know.
While investors originally reacted positively to the cease-fire that came out of the G20 summit over the weekend the appointment of known hardliner Robert Lighthizer to spearhead the negotiations suggests they won’t be a cakewalk.
“The U.S. and China are a long way from a final trade deal. Markets are likely to react to headlines on progress being made on trade or not,” writes SunTrust’s Keith Lerner. “However, we still view the cease-fire as a net positive on a short-term basis as enactment of additional tariffs are delayed, allowing additional time for negotiation.”
Unfortunately, it’s not just tariffs that are worrying markets: Bonds are also an issue, as the 10-year U.S. Treasury yield continues to drift lower below 3%, a sign of increased worry about economic growth. Yields on both the two- and three-year Treasuries are above the five-year T-note for the first time since the recession.
“While this is not an indicator of an immediate recession, it does signal that the U.S. economy is in the later stage of the business cycle,” writes Allianz Investment Management’s Charlie Ripley. “With regards to an inverted Treasury yield curve signaling a recession, the Federal Reserve believes a more appropriate indicator would be the spread between three-month Treasury Bills and 10-year Treasury notes. Thus, while the inversion between the two-year and five-year point of the Treasury curve is notable, the spread between three-month Treasury bills and the 10-year U.S. Treasury is still 50 basis points and it could be many months before we see that point of the curve invert.”
Recent volatility may have gobbled away much of the market’s 2018 returns, and with a less robust growth outlook for 2019, it’s understandable that investors are nervous. Nonetheless, as we approach the 10th anniversary of the bull market, the silver lining is that the recent selloffs have made stocks cheaper. Fortune favors the bold, and long-term investors who can overcome their fears have a chance to buy stocks on the cheap.
“A great company whose stock price falls 40% is likely going to provide much more in returns the next 10 years than if it hadn’t declined in price,” writes Smead Capital Markets’ Bill Smead. “In every other facet of commerce, lower prices are considered a good thing…What a stock price does in the short run doesn’t matter in 10 years. How well the underlying company does and how attractively you bought [it] determines the long-run returns.”
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