ROOM TO RUN
Investors back on alert for a full-blown correction as global stocks plummet.
Global stocks plummeted in unison on Thursday, putting investors back on alert for a fullblown correction, but just how severe the potential pullback might be remains to be seen in an environment that is increasingly defined by divergent markets around the world.
“I’ve seen this brewing for a while,” said Greg Newman, an associate portfolio manager at The Newman Group, a division of Scotia McLeod in Toronto. “I fear this pullback has further room to run.”
In a broad selloff that took down major indexes in North America and Europe and several emerging markets, the S&P/ TSX composite index, Canada’s primary exchange, extended its losing streak to five days, falling 226.97 points, or 1.5% at for a close at 14,893.57.
The Dow Jones industrial average, meanwhile, shed 264.26 points or 1.5% to end the tumultuous session at 16,945.80 and the S&P 500 fell the most since July, sliding 32.31 points or 1.6% to 1965.99.
The Euro Stoxx 50 was also lower Thursday, as investors grappled with several concerns, including complaints related to Apple Inc.’s new smartphone, and new signs of a worsening conflict in Russia and the Middle East.
Mr. Newman said more than a few factors came together to make Thursday’s session “dramatic” but the heart of this “brewing storm” has been Europe’s economic deceleration, which arguably began with the Russian / Ukraine conflict and has ended up impacting Germany’s exports.
“Europe is a $16-trillion economy approximately,” he said. “It going the wrong way impacts China, which pressures global growth.”
Mr. Newman added that a lower euro means a higher U.S. dollar, which knocks down commodity prices and is problematic for S&P 500 forward earnings guidance.
“Finally, you get news today of a possible Russian escalation of sanctions and traders no longer can ignore the problem and everyone decides to put on protection at once.”
He thinks equity markets could fall further unless something positive offsets Europe’s economic troubles.
Others agree that markets are set for a bigger pullback after hitting more all-time highs earlier this month, but many analysts are indecisive about the degree in which stocks could fall and whether a correction is even in the cards.
Russ Koesterich of BlackRock Inc. said the economic and monetary environment remains supportive of stocks, but not every country or every sector is feeling the good vibrations. “We continue to see significant differences among countries, as well as market segments,” he wrote in his weekly commentary.