Volatility erupted anew in financial markets as a fresh year brought jarring swings, anxiety about global growth and the worst start on record for equities both in the US and in the world.
The Standard & Poor’s 500 Index tumbled 6 percent in the week, the biggest drop since September 2011 and the steepest slide over five days to begin a year on record. Even a blockbuster jobs report that bolstered optimism in the world’s largest economy was not enough to arrest the freefall, with an end-of-week rally stalling as investors shunned US equities heading into the weekend.
While the primary culprit was China, where a surprise weakening of the nation’s currency fueled concern that a slowdown there is worse than thought, a host of factors contributed to the rout. Crude prices plunged to a 12-year low, reviving fears that indebted energy producers will not be able to remain solvent. North Korea tested a nuclear weapon, heightening geopolitical worries, and Middle East tensions mounted.
Photo: Bloomberg
The new year started with a US Federal Reserve intent on raising borrowing costs at the same time corporate earnings are forecast to fall through the first quarter. With volatility returning and a measure of share valuations stretched, investors are finding little reason to pile into a bull market that is approaching its seventh anniversary.
“It’s going to be a jittery market,” Brad McMillan, chief investment officer of Commonwealth Financial Network in Waltham, Massachusetts, which oversees US$100 billion, said by telephone. “To now see August’s problems come back with a vengeance is frightening. The US will come through it just fine, but make no mistake, China is potentially a big problem and people are going to be more responsive going forward.”
The S&P 500 endured four slides of more than 1 percent, including a 2.4 percent rout on Thursday, to close at 1,922.03, the lowest level since Sept. 30. The Dow Jones Industrial Average tumbled 1,078.58 points in the week, or 6.2 percent, to 16,346.45. Almost 95 percent of S&P 500 shares retreated, while Wal-Mart Stores Inc was the only member of the 30-stock Dow to gain.
The tumble in global equities began on Monday in China after a weakening yuan sent stocks there down 7 percent to trip new circuit breakers that shut markets midday. A claim by North Korean officials that the country successfully tested its first hydrogen bomb added to investor angst. Crude’s plunge below US$33 a barrel in New York pushed energy producers in the S&P 500 to the lowest levels in five years.
“It was a hectic week,” said Mark Spellman, a fund manager who helps oversee more than US$4 billion at Alpine Funds in Purchase, New York. “We’re still in a risk-off mentality. Any kind of risk-on trade mentality that comes in is going to be short-lived until global economic growth improves.”
US markets shook, with the Chicago Board Options Exchange Volatility Index surging 48 percent to 27.01. The VIX’s biggest jump in a month left it 61 percent above the one-year average of 16.7. At the same time, share-price multiples for stocks in the S&P 500, at 23 times reported earnings, are 30 percent above the average since 1936.
“Overall, there’s instability the market is trying to get its arms around,” Chicago-based KKM Financial LLC manager Dan Deming said. “The psychology in the market was ripe for a selloff, the fundamentals were starting to show some cracks, particularly in China, and the technical aspects looked pretty bearish.”
The worst start to a year for global financial markets sparked the biggest weekly outflow of cash from equity mutual funds since September, as investors pulled US$8.8 billion from global equity funds, according to data collected by Cambridge, Massachusetts-based EPFR Global Inc. Redemptions at US-based stock funds hit at a 17-week high, with investors favoring funds that target Europe and Japan, where central banks have pledged continued support.
China took steps on Friday to stabilize its markets, and a government jobs report in the US that indicated resilience in the labor market provided a burst of optimism that the world’s largest economy would be spared from slowing global growth. That faded in afternoon trading, with the selloff intensifying as investors headed for the weekend.
The S&P 500’s rout left it almost 10 percent below its record set in May, though the gauge remains 2.9 percent above its August trough.
FALLING BEHIND: Samsung shares have declined more than 20 percent this year, as the world’s largest chipmaker struggles in key markets and plays catch-up to rival SK Hynix Samsung Electronics Co is laying off workers in Southeast Asia, Australia and New Zealand as part of a plan to reduce its global headcount by thousands of jobs, sources familiar with the situation said. The layoffs could affect about 10 percent of its workforces in those markets, although the numbers for each subsidiary might vary, said one of the sources, who asked not to be named because the matter is private. Job cuts are planned for other overseas subsidiaries and could reach 10 percent in certain markets, the source said. The South Korean company has about 147,000 in staff overseas, more than half
Taipei is today suspending its US$2.5 trillion stock market as Super Typhoon Krathon approaches Taiwan with strong winds and heavy rain. The nation is not conducting securities, currency or fixed-income trading, statements from its stock and currency exchanges said. Yesterday, schools and offices were closed in several cities and counties in southern and eastern Taiwan, including in the key industrial port city of Kaohsiung. Taiwan, which started canceling flights, ship sailings and some train services earlier this week, has wind and rain advisories in place for much of the island. It regularly experiences typhoons, and in July shut offices and schools as
TECH PARTNERSHIP: The deal with Arizona-based Amkor would provide TSMC with advanced packing and test capacities, a requirement to serve US customers Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) is collaborating with Amkor Technology Inc to provide local advanced packaging and test capacities in Arizona to address customer requirements for geographical flexibility in chip manufacturing. As part of the agreement, TSMC, the world’s biggest contract chipmaker, would contract turnkey advanced packaging and test services from Amkor at their planned facility in Peoria, Arizona, a joint statement released yesterday said. TSMC would leverage these services to support its customers, particularly those using TSMC’s advanced wafer fabrication facilities in Phoenix, Arizona, it said. The companies would jointly define the specific packaging technologies, such as TSMC’s Integrated
An Indian factory producing iPhone components resumed work yesterday after a fire that halted production — the third blaze to disrupt Apple Inc’s local supply chain since the start of last year. Local industrial behemoth Tata Group’s plant in Tamil Nadu, which was shut down by the unexplained fire on Saturday, is a key linchpin of Apple’s nascent supply chain in the country. A spokesperson for subsidiary Tata Electronics Pvt yesterday said that the company would restart work in “many areas of the facility today.” “We’ve been working diligently since Saturday to support our team and to identify the cause of the fire,”
RSS