Stocks re­bound af­ter a week of steep losses

Mar­kets re­bound af­ter see­ing steep losses this week, but many fear that volatil­ity may be here to stay.

Los Angeles Times - - FRONT PAGE - As­so­ci­ated press

The mar­ket de­clined for six straight ses­sions be­fore Fri­day’s come­back, sig­nal­ing that volatil­ity could be the new nor­mal on Wall Street.

Stocks re­bounded Fri­day, claw­ing back some of the week’s steep losses, but the tur­bu­lent trad­ing of the last few days left no doubt that the rel­a­tive calm the mar­kets en­joyed all sum­mer has been shat­tered.

Ma­jor U.S. in­dexes ended the week down about 4%, their big­gest weekly loss in six months. An in­dex mea­sur­ing the per­for­mance of small-com­pany stocks had its worst week since early 2016.

This wasn’t the first time ex­treme mar­ket volatil­ity added some tur­moil to five of the qui­etest years in eq­ui­ties that in­vestors have ever seen.

In Fe­bru­ary, the Dow tum­bled more than 1,000 points on two sep­a­rate days, not long af­ter the mas­sive GOP tax cuts took ef­fect. Those tax cuts raised growth ex­pec­ta­tions but also raised the prospect of higher in­ter­est rates — a lin­ger­ing fear that con­trib­uted to this week’s tu­mult.

Then stocks around the world plunged in late March af­ter Pres­i­dent Trump de­cided to ap­ply tar­iffs on some im­ports from China — the first skir­mishes in a trade fight that has since be­come what ap­pears to be pro­longed trench war­fare.

So when the mar­ket swung wildly again this week, the con­clu­sion was clear for many: Mar­ket volatil­ity is part of the new nor­mal, and it’s prob­a­bly here to stay.

That per­cep­tion is re­flected in the Cboe Volatil­ity In­dex, or VIX, a bench­mark for eq­uity tur­bu­lence de­rived from op­tions prices. It has av­er­aged 15.2 in 2018, up 37% from 2017.

“It’s in­tense. Look at the sell-off that hap­pened yes­ter­day af­ter­noon. I was look­ing at my screen and

was like, ‘Re­ally?’ ” said Don­ald Selkin, chief mar­ket strate­gist at New­bridge Se­cu­ri­ties in New York. “In Fe­bru­ary, there was a cat­a­lyst to blame. This time, it’s a struc­tural shift.”

Stocks de­clined for six straight ses­sions be­fore re­bound­ing Fri­day, the long­est streak since be­fore Trump was elected pres­i­dent. Un­happy about the di­rec­tion of the stock mar­ket this week, Trump stepped up crit­i­cism of the Fed­eral Re­serve, which has been steadily rais­ing short-term rates to stem in­fla­tion.

Big tech­nol­ogy and con­sumer-fo­cused com­pa­nies led the re­cov­ery Fri­day. Long­time fa­vorites of many in­vestors, they had dropped in the last few days.

A ma­jor fac­tor cited by mar­ket watch­ers for the pull­back was the sharp in­crease in long-term in­ter­est rates. Those rates are not set by the Fed, and high ones can slow the econ­omy and make bonds more at­trac­tive to in­vestors rel­a­tive to stocks.

Yields on 10-year Trea­sury notes peaked at al­most 3.26% this week, the high­est in seven years.

Ap­ple climbed 3.6% to $222.11, and Mi­crosoft gained 3.5% to $109.57. Ama­zon jumped 4% to $1,788.41. Those are the three most valu­able com­pa­nies in the United States, and they had suf­fered star­tling de­clines the last few days: On Wednesday, each took its big­gest loss in more than two years.

That made for a dra­matic end to three months of calm on the U.S. mar­ket.

The Stan­dard & Poor’s 500 in­dex rose 38.76 points, or 1.4%, to 2,767.13, end­ing a six-day los­ing streak. The bench­mark in­dex tum­bled 4.1% this week, and it’s down 5.6% from its Sept. 20 record high.

Thanks in part to the tech firms’ big gains, the Nas­daq com­pos­ite jumped 167.83 points, or 2.3%, to 7,496.89 on Fri­day.

The Dow Jones in­dus­trial av­er­age rose as much as 414 points early in the day, then gave it all up and turned slightly lower. It re­bounded and fin­ished with a gain of 287.16 points, or 1.1%, at 25,339.99.

The mar­ket’s re­cent skid started last week, when strong eco­nomic data and pos­i­tive com­ments from Fed­eral Re­serve Chair­man Jerome Pow­ell helped set off a wave of selling in the bond mar­ket as in­vestors bet that the U.S. econ­omy would keep grow­ing at a healthy pace.

That pushed down bond prices and sent yields up to seven-year highs.

That drove in­ter­est rates sharply higher, which wor­ried stock in­vestors who felt that a big rise could sti­fle eco­nomic growth. The big swings in the mar­ket Fri­day sug­gest those fears haven’t gone away.

The VIX hit 26.83 on Thurs­day and closed the week at 21.31, well above its year-to-date av­er­age.

“What seems to have driven this is a fear in­ter­est rates were go­ing to rise more quickly be­cause the Fed was be­ing too ag­gres­sive or the econ­omy was go­ing to over­heat,” said David Kelly, chief global strate­gist for JP­Mor­gan Funds.

Kelly said he doesn’t think ei­ther of those fears is jus­ti­fied, as the Fed isn’t rais­ing in­ter­est rates that rapidly and eco­nomic growth hasn’t sped up re­cently.

Small com­pa­nies didn’t fare as well. The Rus­sell 2000 in­dex rose just 1.30 points, or 0.1%, to 1,546.68 on Fri­day; it notched its largest one-week loss since Jan­uary 2016.

U.S. au­tomak­ers Ford and Gen­eral Mo­tors con­tin­ued to slump. GM fell 1.6% to $31.79, its low­est in al­most two years.

Ford, trad­ing at its low­est in al­most nine years, slid 1.9% to $8.64. Both have sunk this year as they deal with slow­ing sales and the Trump ad­min­is­tra­tion’s tar­iffs on steel and alu­minum, which are send­ing their man­u­fac­tur­ing costs higher.

The au­tomak­ers’ stocks have fallen fur­ther in re­cent days af­ter re­ports that Ford might cut jobs. In late Septem­ber, Ford Chief Ex­ec­u­tive Jim Hack­ett said the steel and alu­minum du­ties would cost the com­pany $1 bil­lion through 2019.

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