Stocks fell around the world as traders rushed into bonds after a raft of news on China, Italy and the US fanned worries about the financial system and the economy.
(Bloomberg) — Stocks fell around the world as traders rushed into bonds after a raft of news on China, Italy and the US fanned worries about the financial system and the economy.
Financial shares bore the brunt of the selling as Moody’s Investors Service downgraded 10 small and midsize American lenders and said it may do the same with a handful of major firms. Italy’s tax on the industry’s profits erased €9.3 billion ($10.2 billion) from the value of the country’s banks. Copper — a barometer of economic growth — slid on disappointing Chinese trade figures.
“The outlook for the economy has not reversed to one that is now looking for strong growth over the rest of this year and into next year,” said Matt Maley, chief market strategist at Miller Tabak + Co. “As the stock market has rallied pretty much in a straight line since March, investors have become numb to these problems.”
All 24 companies in the KBW Bank Index retreated. The S&P 500 pared losses as Eli Lilly & Co. led gains in health-care companies after sales of its weight-loss treatment blew past expectations and a new study raised the prospect that its drug could benefit heart disease as well. The tech-heavy Nasdaq 100 underperformed, led by declines in Microsoft Corp. and Amazon.com Inc.
Treasury 10-year yields dropped to around 4%. Before the week is over, the bond market will have to digest the biggest round of refunding auctions since last year. The dollar rose against all of its developed-market peers. The MSCI Emerging Market Index of stocks headed for its lowest in almost four weeks. Oil rebounded after Ukrainian President Volodymyr Zelenskiy said his country would retaliate if Russia continues to block its ports.
Just a few days before a key inflation report, investors also waded through remarks from Federal Reserve officials.
Fed Bank of Philadelphia President Patrick Harker said the central bank may be able to cease rate hikes, barring any surprises in the economy, though rates would need to stay at their current elevated levels for some time. Harker also noted that “sometime probably next year, we’ll start to bring the interest rates down.” His Richmond counterpart Thomas Barkin argued it was too soon to say whether another an increase in September would be appropriate.
To David Spika at GuideStone Capital Management, the restrictive policy imposed by the Fed will lead to economic weakness and a correction in equities. He notes that the market remains at a valuation “that just doesn’t make sense relative to where we are.”
We’re “in between the inflation spikes and the Fed hikes, but also waiting for the economy and profits to sour,” Meera Pandit at JPMorgan Asset Management told Bloomberg Television. “So I don’t know that there is a whole lot of upside catalyst in a world where profits are just better than feared, we need to see some more out of the profits landscape in order to get some more upside out of stocks that have already rallied really hard.”
In fact, some traders cited the fact that the equity market is also pulling back after a rally that drove the S&P 500 up almost 20% this year. Sentiment recently hit the highest levels since the start of the year — a short-term bearish sign that has historically signaled a mild decline stocks.
The Bloomberg Intelligence Market Pulse Index, which acts as a contrarian signal, pushed into manic territory in July following three consecutive months in a neutral range. It’s a rare sign that has typically delivered weaker US equity returns over the next three months, with small caps underperforming their larger counterparts, data compiled by BI show.
“We still believe that stocks in general are prone to pullbacks in the magnitude of 5%-10% off the recent highs as we move through the second half of 2023,” said Dan Wantrobski at Janney Montgomery Scott. “Selling pressures will continually push the charts into oversold territory frequently, so be on alert for potentially powerful counter-trend moves in sessions ahead.”
- United Parcel Service Inc. lowered its full-year profit forecast and revealed plans to cut management jobs as the courier contends with shifting consumer habits and rising costs after a tentative labor agreement.
- Palantir Technologies Inc., the software maker that has for years sold artificial intelligence-powered programs to governments, fell after issuing a sales forecast that disappointed Wall Street.
- Nvidia Corp. announced an updated AI processor that gives a jolt to the chip’s capacity and speed, seeking to cement the company’s dominance in a burgeoning market.
- Dish Network Corp. is proposing to buy EchoStar Corp., the satellite network operator it once owned, in an all-stock deal as billionaire Charlie Ergen works to shift his struggling legacy pay-TV business empire toward a future in wireless communications.
- Robinhood Markets Inc. is cooperating with an investigation from New York’s top law enforcement office into “brokerage execution quality,” the retail trading firm said in a regulatory filing.
Key events this week:
- China CPI, PPI, money supply, new yuan loans and aggregate financing, Wednesday
- India rate decision, Thursday
- US initial jobless claims, CPI, Thursday
- Atlanta Fed President Raphael Bostic pre-recorded remarks for employment webinar, Thursday
- UK industrial production, GDP, Friday
- US University of Michigan consumer sentiment, PPI, Friday
Some of the main moves in markets:
- The S&P 500 fell 0.7% as of 2:27 p.m. New York time
- The Nasdaq 100 fell 1.1%
- The Dow Jones Industrial Average fell 0.7%
- The MSCI World index fell 0.7%
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro fell 0.4% to $1.0956
- The British pound fell 0.4% to $1.2738
- The Japanese yen fell 0.6% to 143.36 per dollar
- Bitcoin rose 2.6% to $29,927.15
- Ether rose 2.4% to $1,869.6
- The yield on 10-year Treasuries declined six basis points to 4.02%
- Germany’s 10-year yield declined 13 basis points to 2.47%
- Britain’s 10-year yield declined eight basis points to 4.39%
- West Texas Intermediate crude rose 1.2% to $82.89 a barrel
- Gold futures fell 0.5% to $1,959.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott, Tassia Sipahutar, Cecile Gutscher, Emily Graffeo, Vildana Hajric and Isabelle Lee.
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