Markets surge after Fed lifts rates

23 Dec 2015 | Author: | No comments yet »

Rate Rally Fizzles as Dow Ends Week With Slide.

NEW YORK: With Wall Street heading into its usually buoyant year-end period, continued weakness in oil prices presents a major wildcard that could spoil any holiday cheer for stock investors.

New York: US stocks suffered the biggest two-day retreat in three months, as investors weighed the impact of the Federal Reserve’s interest-rate increase and the prospects for slowing global growth.US stocks closed lower on Friday for the second straight day, as concerns, ranging from a decline in crude oil prices to the global response to the Federal Reserve’s interest hike, weighed down the market. “It’s a confluence of all the factors: oil prices continuing to run down, the Chinese trying to counteract the dollar and everyone is digesting, globally, what the Fed’s announcement means for emerging markets and everything else,” said J.J.In the two days after the Federal Reserve gave investors exactly what they expected, the Dow Jones Industrial Average posted its steepest loss since a late-August plunge.

The back-to-back selloff erased 621 points from the blue chips—sending the Dow to its lowest level in two months and wiping out a three-session winning streak logged around the Fed’s liftoff for interest rates. While the S&P 500 index is down 3 percent this month, December ranks as the best-performing month on average for the index since 1950, according to the Stock Trader’s Almanac. The fizzled rally underscores the difficult backdrop across markets as investors prepare to close out what is shaping up to be worst year for U.S. stocks since the financial crisis. Investors are going into the holidays with grim news from the energy and mining sectors, uncertainty about the stability of markets for low-rated debt and worries about slowing economies overseas.

Meanwhile, public companies have struggled to post higher profits, and investors remain wary of buying stocks that look expensive compared with historical averages. “When you buy a share of stock you’re paying for a piece of future cash flows,” said David Lebovitz, global market strategist, at J.P. Morgan Asset Management, which has about $1.7 trillion under management. “If those cash flows aren’t materializing, it doesn’t make sense.” Investors had taken heart from stronger jobs data and the Fed’s signal that the U.S. economy is strong enough to begin returning rates to a more normal level.

At 2,016 as of mid-day Friday trading, the benchmark US index would need to rally more than 4 percent to reach the median year-end forecast of 2,100 (a 2 percent gain for the year) from 46 strategists polled earlier this month by Reuters. Equities extended declines in the final minutes of trading amid the quarterly event known as quadruple witching, when futures and options contracts on indexes and individual stocks expire. While low oil prices have been thought to be a potential stimulant for the economy by lowering gas prices and putting more money in consumers’ pockets, the recent drop has apparently sent a negative signal to the market. “I think people interpret lower oil prices as a weakness to the overall world economy and therefore if there’s not a real strong demand for energy, the economy is getting weaker,” said Gary Bradshaw, a portfolio manager with Hodges Capital Management in Dallas. With the central bank withdrawing stimulus, even if it’s promised to do so at a gradual pace, investors are growing cautious as earnings and ultimately the economy are left to drive stock prices. Declining issues outnumbered advancing ones on the NYSE by 2,013 to 1,074, for a 1.87-to-1 ratio on the downside; on the Nasdaq, 1,813 issues fell and 1,084 advanced for a 1.67-to-1 ratio favoring decliners.

Yields on the note now aren’t much above where they started the year. “Shorting Treasury bonds which are a safe haven beneficiary when the economic and geopolitical risks are rising is foolhardy,’’ said Jonathan Lewis, chief investment officer at Samson Capital Advisors LLC, which has $7.2 billion in assets under management. The index has fallen 3.6 per cent in December, bucking the historical seasonal trend of gains, and headed for the biggest annual drop since the 2008 financial crisis. While this week’s Fed rate decision removed a measure of uncertainty on financial markets and added to optimism that the world’s largest economy is on firm footing, it did little to allay concern that global growth remains vulnerable to a slowdown in China and a related rout in commodities.

Following the central bank’s move on Wednesday, Chair Janet Yellen repeatedly stressed her confidence in the health of the economy and played down concerns that it would be knocked off course by weakness overseas or by the recent tumult in the high-yield bond market. “The Fed hiked, the world didn’t end,” said Ross Yarrow, director of US equities at Robert W. There’s no huge reason for people to be putting money to work between now and the end of the year.” The Chicago Board Options Exchange Volatility Index rose 9.3 per cent Friday to 20.70. The iShares iBoxx USD High Yield Corporate Bond exchange-traded fund, the largest junk-bond ETF by assets and a proxy for the market, ended the week nearly unchanged. Leo Marzen, co-founder of Bridgewater Advisors, which he says manages about $1.2 billion, said he has been selling funds that contain junk bonds over the past month and holding more cash. “We are cautious,” said Mr. Among consumer discretionary companies, CarMax Inc tumbled 6.4 per cent, the most in a year, after the used-car dealer’s quarterly results missed estimates.

Offshore rig owners are suffering from the double whammy of a glut of new vessels entering the market at the same time as falling crude prices force oil explorers to cut spending. The world’s biggest cruise operator rose after saying advance bookings for the first three quarters of 2016 are well ahead of the previous year at slightly higher prices.

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