S&P 500, Dow confirm correction as stocks sink again

S&P 500, Dow confirm correction as stocks sink again

In China, markets were overheated after a steep rise since the start of this year, said David Cui, China equity strategist at Bank of America Merrill Lynch.

Irrespective of short-term market movements, we believe that we are returning to a more "normal" cycle of higher yields and higher interest rates.

The stock market is still up dramatically since President Trump's election. This will resurrect the ghosts of the bond market vigilantes of the Clinton-era in the 1990s.

The market is nervous about new supply coming to the market this year as the Fed not only raises rates but continues its program to buy fewer and fewer Treasury securities, in the unwind of extraordinary easing instituted in the financial crisis.

Rory McPherson, head of investment strategy at Psgima IM, said investors should expect more volatile markets heading into 2018, as this is the first year where the marginal buyer of bonds is not a central bank.

"Stocks have rallied in the other 18 periods, with generally better-than-average returns", he says.

"We're in this interest rate bed all together".

U.S. Treasury prices gained after renewed weakness in equity markets increased demand for the low risk debt, while oil prices sold off more than 3 percent.

"There's going to be an interplay, a bit of push and pull between the rates market and equity market", said Mark Cabana, head of USA short rate strategy at Bank of America Merrill Lynch. It's the opposite of something that has bugged stock bulls for years, the flattening yield curve, which can imply moribund expectations for long-term growth. In the past 21 episodes since 1945 when the 30-year US bond yield has suffered "significant" spikes, stock prices have only declined in three of those periods.


But there's a point where the "signal" leaves the abstract and becomes a drag on earnings. A higher fiscal deficit forces the government to go for higher market borrowings.

The S&P 500 last confirmed a correction in January 2016, when it fell 13.3 percent amid concerns about a slump in oil prices.

Jim O'Neill, Former Commerce Secretary in the United Kingdom government, on Monday said the U.S. is growing and the central bank may need to tighten monetary policy faster than the market has perceived.

Troublingly, the pace of growth in net operating cash flow among S&P 500 companies excluding energy and finance firms has already been declining over the past year, according to data compiled by Bloomberg and SocGen strategists including Andrew Lapthorne. The more the bond yields rise, the more will be this opportunity cost.

"The dust hasn't settled yet, and I think both buyers and sellers are trying to figure out what this market really wants to do", said Jonathan Corpina, senior managing partner for Meridian Equity Partners in NY. But they're going up now at a time when anxiety about the monetary policy is obviously on the rise. European Central Bank too picked up even junk bonds from various countries.

However, rising bonds does not always lead to poor equity performance. The German 10-year yield, Europe's benchmark, climbed to its highest level since late 2015.

The sharp sell-off in recent days was kicked off by concerns over rising inflation and bond yields, sparked by Friday's January US jobs report, with investors pointing to additional pressure from the violent unwinding of trades linked to bets on volatility staying low.

Last week, rising bond yields prompted the Bank of Japan (BoJ) to intervene in the bond market for the first time since July previous year.

"Equity nervousness seems to be about repricing for higher yields and tighter Fed policy". They also present an alternative to investors who may reallocate some funds to bonds from equities. "There's both a market valuation explanation and a fundamental economics mechanism".

Related Articles

  • Auto Expo 2018: Mahindra unveils first convertible SUV 'TUV Stinger'

    Auto Expo 2018: Mahindra unveils first convertible SUV 'TUV Stinger'

    Tata Motors is showcasing two of the 2018 Auto Expo's hottest vehicle concepts - the 45X premium hatchback and the H5X 5 seat SUV. India Yamaha Motor announced the launch of its super sports bike YZF-R15, a 155 cc, liquid-cooled, 4-Stoke, fuel injected engine.
    Orari gare sci Olimpiadi Pyeongchang

    Orari gare sci Olimpiadi Pyeongchang

    La prima gara ad assegnare una medaglia sarà quella della 7,5 chilometri femminile di sci di fondo , in programma sabato 10 febbraio alle 8.15 (ora italiana) all'Alpensia Cross Country Centre.
    Twenty-First Century Fox revenue greater than doubles on…

    Twenty-First Century Fox revenue greater than doubles on…

    First Foundation Advisors decreased Pfizer Inc (NYSE:PFE) stake by 506,230 shares to 985,632 valued at $35.19 million in 2017Q3. On an adjusted basis, earnings were $771 million or $0.42 per share, down from $976 million or $0.53 per share past year .
  • Southampton boss Pellegrino: Stephens stepping up thanks to Van Dijk sale

    Southampton boss Pellegrino: Stephens stepping up thanks to Van Dijk sale

    Karius, easily the busier of the two goalkeepers, was tested again just before the half-hour mark, halting Guido Carrillo's header from a James Ward-Prowse cross.
    Users 'Extremely' Disappointed on Latest Snapchat Update

    Users 'Extremely' Disappointed on Latest Snapchat Update

    Swiping right will take you to an overhauled Discover page that serves you Stories from publishers, creators, and community. But the redesign is not being recieved well by users as about 83% of reviews on the App Store have given negative replies.
    Trump signs United States  spending bill ending government shutdown

    Trump signs United States spending bill ending government shutdown

    Susan Collins was optimistic about the preparedness of the bipartisan group she was been leading for the all-Senate debate. The bill McConnell chose was unrelated to immigration, after he had said he planned to use a separate bill for the debate.
  • Oxycontin Maker Purdue Pharma To Stop Agressive Marketing Of Opioids

    Oxycontin Maker Purdue Pharma To Stop Agressive Marketing Of Opioids

    It later acknowledged that its promotions exaggerated the safety of the drug and minimized its risk for addiction. Doctors who want information on opioids will now need to contact the company's medical affairs department.
    North Korea's Kim Jong invites S Korea's Prez to Pyongyang

    North Korea's Kim Jong invites S Korea's Prez to Pyongyang

    Pence appeared to leave the door open for negotiations earlier this week when he said, "I haven't requested any meeting". The media certainly noticed them but it is unclear if Kim Jong-un's sister saw them.
    Qualcomm rejects Broadcom's raised offer, extends timeline for NXP

    Qualcomm rejects Broadcom's raised offer, extends timeline for NXP

    Broadcom earlier this week upped the ante for Qualcomm , calling the $121 billion bid its "best and final" offer for Qualcomm. Qualcomm's rejected Broadcom's latest attempt to buy it, but has also said it is willing to discuss doing a deal.
  • Ireland Get Ready For 6 Nations Clash With Italy

    Ireland Get Ready For 6 Nations Clash With Italy

    Centre Robbie Henshaw scored two of them, with winger Jacob Stockdale also grabbing a brace. Tommaso Allan, Eduardo Gori and Matteo Minozzi got on the board in the second half.
    Scotland bounce back to beat France in Six Nations

    Scotland bounce back to beat France in Six Nations

    France made it easy for the home team, constantly giving away penalties in the ruck. "We put a team out to perform". Both coaches went to their benches in search of a game-changer, both equally desperate for a victory.
    Ohio State storms back to upset Purdue

    Ohio State storms back to upset Purdue

    Nick Ward, Joshua Langford, Cassius Winston and Jaren Jackson Jr. are all averaging in double figures and quite hard to defend. At 7-foot-2, 290 pounds, hed took entry passes deep in the post and finished over whoever Michigan State sent to guard him.