Wall Street is struggling with renewed fears about the economic outlook and at the same time feeling a chill from a tougher stand from the White House on banks and financial market regulation.
The market was hammered over the past week by worries about the US outlook and trouble in China, where an overheating economy may prompt a credit squeeze that hurts the rest of the global economy.
Also hurting the mood was a tough proposal from US President Barack Obama to curb the size and scope of banks, and growing opposition to US Federal Reserve Chairman Ben Bernanke’s renomination.
In the coming week, markets will deal with the outcome of a Federal Reserve policy meeting, as well as the drama surrounding the Bernanke confirmation. A slew of earnings reports are also expected.
On the economic front, data is expected to show a strong gain in US economic activity in the fourth quarter, but analysts say the figures will likely be skewed by a bounce in inventory activity.
Over the holiday-shortened week, the Dow Jones Industrial Average tumbled 4.12 percent to 10,172.98, in a sharp pullback from 15-month highs.
The tech-rich NASDAQ composite sank 3.61 percent to 2,205.29 the broad Standard & Poor’s 500 index slumped 3.90 percent to 1,091.76.
The recent volatility “is a reflection of how much uncertainty that continues to swirl with respect to the economic landscape and the shape that financial market regulation will take,” said Diana Petramala, economist at TD Bank Financial Group.
Petramala said the markets were roiled by the proposals by Obama to cap the size and scope of bank activity, a plan unveiled after the White House called for a new tax on big financial institutions.
“There is still a question mark around what the future holds for the US banking sector,” she said.
“Adding to investor angst this week was the notion that a global recovery could be slower than expected,” especially with China appearing to be moving to cool activity, she said.
Petramala said data on Thursday on US gross domestic product could show a strong growth rate in the economy of 5 percent, but cautioned that “over half of the bounce in economic activity looks to have been due to a large inventory swing and not to sustainable economic drivers.”
Despite the renewed skittishness, some analysts said Wall Street is seeing an overdue correction, which could take some of the speculative froth out of the market and set the stage for more gains.
“The market seems to want to take a breather, so it found negative spin this week,” said Linda Duessel at Federated Investors.
“At a moment when most everyone is looking for a correction, there probably shouldn’t be a serious one,” she said.
Bob Dickey at RBC Wealth Management said traders have been using the current corporate earnings season to lock in profits, after having pushed up the market in anticipation of positive profit reports.
“The market continues to trade in its backward fashion of pulling back on the good news of so many companies beating their fourth quarter earnings expectations,” Dickey said.
This phenomenon “can help to explain why the market has rallied so strongly over the past nine months and is now giving some back in the face of apparent good news,” he said.
RESTRAINTS: Should China’s actions pose any threat to Taiwan’s security, economic or social systems, China would be excluded from major financial institutions, the bill says The US House of Representatives on Monday passed the PROTECT Taiwan Act, which states that Washington would exclude China from participating in major global financial organizations if its actions directly threaten Taiwan’s security. The bill, proposed by Republican Representative Frank Lucas, passed with 395 votes in favor and two against. It stipulates that if China’s actions pose any threat to Taiwan’s security, economic or social systems, the US would, “to the maximum extent practicable,” exclude Beijing from international financial institutions, including the G20, the Bank for International Settlements and the Financial Stability Board. The bill makes it clear that China must be prepared
PEACE AT LAST? UN experts had warned of threats and attacks ahead of the voting, but after a turbulent period, Bangladesh has seemingly reacted to the result with calm The Bangladesh Nationalist Party (BNP) yesterday celebrated a landslide victory in the first elections held since a deadly 2024 uprising, with party leader Tarique Rahman to become prime minister. Bangladesh Election Commission figures showed that the BNP alliance had won 212 seats, compared with 77 for the Islamist-led Jamaat-e-Islami alliance. The US embassy congratulated Rahman and the BNP for a “historic victory,” while India praised Rahman’s “decisive win” in a significant step after recent rocky relations with Bangladesh. China and Pakistan, which grew closer to Bangladesh since the uprising and the souring of ties with India, where ousted Bangladeshi prime minister Sheikh Hasina
FAST-TRACK: The deal is to be sent to the legislature, but time is of the essence, as Trump had raised tariffs on Seoul when it failed to quickly ratify a similar pact Taiwan and the US on Thursday signed a trade agreement that caps US tariffs on Taiwanese goods at 15 percent and provides preferential market access for US industrial and agricultural exports, including cars, and beef and pork products. The Taiwan-US Agreement on Reciprocal Trade confirms a 15 percent US tariff for Taiwanese goods, and grants Taiwanese semiconductors and related products the most-favorable-treatment under Section 232 of the Trade Expansion Act, the Executive Yuan said. In addition, 2,072 items — representing nearly 20 percent of Taiwan’s total exports to the US — would be exempt from additional tariffs and be subject only to
The Taiwan Space Agency (TASA) yesterday released the first images from its Formosat-8A satellite, featuring high-resolution views of Hsinchu Science Park (新竹科學園區), Tainan’s Anping District (安平), Kaohsiung’s Singda Harbor (興達港), Japan’s National Stadium in Tokyo and Barcelona airport. Formosat-8A, named the “Chi Po-lin Satellite” after the late Taiwanese documentary filmmaker Chi Po-lin (齊柏林), was launched on Nov. 29 last year. It is designed to capture images at a 1m resolution, which can be sharpened to 0.7m after processing, surpassing the capabilities of its predecessor, Formosat-5, the agency said. It is the first of TASA’s eight-satellite Formosat-8 constellation to be sent into orbit and
RSS