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22nd of October 2018


Wall Street stages late rebound after turbulent week

Wall Street staged a rebound on Friday afternoon to end a turbulent week on a more positive note, with US technology stocks enjoying their biggest one-day gain in more than half a year.

The S&P 500 had fallen for six straight days leading up to Friday, the longest losing streak of Donald Trump’s presidency, as a Treasury sell-off rattled global investors and infected equities as well.

The US stock market started Friday on the front foot, only to sag lower and threaten to end in the red for a seventh day running. But the S&P 500 reversed its midday swoon to end the week with a 1.4 per cent gain — the best day since April

Robust results from JPMorgan and Citigroup also provided a glimmer of light at the start of the pivotal US corporate earning season. Nonetheless, JPMorgan’s shares fell 1.1 per cent on Friday, despite reporting a 24 per cent increase in net income over last year, reflecting a strong retail banking performance at its Chase division. Citi’s stock rebounded 2.1 per cent.

It was more a cocktail than a smoking gun

The global sell-off, which gathered speed this week but began at the start of the month, has been blamed on a recent jump in yields on benchmark US Treasuries. Investors fear that this will lead to a rise in borrowing costs for a wide range of heavily indebted companies and make equity valuations look relatively less attractive.

Investors said the selling snowballed on a range of factors, including lingering concerns about global trade tensions, crowded bets on big tech stocks and an unwinding of trading strategies sensitive to volatility.

“It was more a cocktail than a smoking gun,” said Phil Orlando, chief equity market strategist at Federated Investors.

The selling earlier in the week was fairly indiscriminate, sweeping most sectors and regions into the downdraft. The pain in stocks was severe enough to draw safety-seeking buyers back to US Treasuries, where yields came off seven-year highs.

Given the pace and severity of this week’s declines, some investors were reluctant to call a bottom to the market.

“The verdict is still out about current valuations and while some investors are viewing this as a buying opportunity, many others are maintaining a more cautious stance,” said Rebecca O’Keeffe, head of investment at Interactive Investor.

“Trade wars, rising interest rates and slowing growth have been front and centre in terms of big macro reasons for the rout, but the reality is that investors need to be asking whether valuations can be justified by company profits.”

Asian stocks also rebounded after one of the most severe sell-offs the region has seen in months. In addition to rising interest rates, Asian bourses have been hardest hit by the impact of the US-China trade war, which was fuelled by increasingly bellicose rhetoric in Washington and Beijing this week.

It’s like a Jenga tower: The market has been a tower of blocks, it’s been strong over [the] past 12-18 months but then a few of the bottom blocks have been knocked out

Tokyo’s Topix held steady on the day, turning round from intraday declines after a 3.5 per cent drop in the previous session. Hong Kong’s Hang Seng was up 2 per cent.

The US stock market recovery on Friday came too late to restore the lustre to European bourses, with the Stoxx 600 index dipping another 0.2 per cent. But coupled with an emerging markets rebound, the FTSE All-World gained 1.1 per cent on Friday, its best day in six months, to crimp its loss this week to 3.9 per cent.

“It’s like a Jenga tower: The market has been a tower of blocks, it’s been strong over [the] past 12-18 months but then a few of the bottom blocks have been knocked out,” said Kerry Craig, global market strategist at JPMorgan Asset Management. “That doesn’t mean it’s going to collapse, it just means there’s more risk in the market than there had been.”

Additional reporting by Edward White in Taipei and Robin Wigglesworth in New York

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