3 things to worry Wall St. this week
Greece, China and inflation add to angst
If you don’t like stock market volatility, the suddenly topsy-turvy market may give you pause.
Fresh anxiety provoked by fresh troubles in debt-strapped Greece and new trading rules in China sparked a wave of selling on Wall Street on Friday, pushing the Dow Jones industrial average down 280 points to 17,826 and erasing its 2015 gains. As traders enter the new week, they will again wrestle with a trio of new headwinds that could test their resolve.
What’s behind the recent angst? USA TODAY got some answers from Brad McMillan, chief investment officer at Commonwealth Financial Network.
Here are three things making investors nervous. 1. INFLATION AND THE FED
The consumer price index ticked up to 1.8% in March from a year ago, and rose 2% monthover-month for the third straight month. Inflation is getting closer to the Federal Reserve’s 2% annual mandate, which could mean Fed interest hikes are getting closer.
“The market expects the Fed to be looser for longer, but (Friday’s) inflation print calls that into question,” says McMillan. “Inflation signals really are starting to flash, and the market is getting more nervous about how long the Fed will put off rate increases.”
Wall Street, which earlier last week had all but ruled out a June rate hike due to weak first-quarter economic growth, is now reconsidering a Fed rate “lift-off ” in June. 2. WORLD NEWS FEARS
Greece’s tenuous financial position is putting a fresh scare into markets, as is China.
“International (news) is a contributing factor,” says McMillan. “Greece is looking less and less likely to stay in the eurozone.” And China’s first-quarter growth of 7%, its slowest pace since the financial crisis, is also a potential problem.
Fears of a Greek default are back in play.
And a decision by Chinese market regulators Friday to cool off stock investments financed by borrowed money sparked worries that less leverage in the hot Chinese stock market will cause prices to drop. 3. EARNINGS MISSES
The earnings season has started off better than expected, with 75% of companies in the S&P 500 topping forecasts. But there have been duds. American Express profit results undershot expectations, for example, and its stock plunged4.4% Friday, weighing down the Dow.
This week 146 companies in the S&P 500 report earnings, including IBM, Chipotle Mexican Grill, Coca-Cola, Google and Amazon.
“Earnings are coming in the usual way — some above, some below — which is providing volatility, but no sustained momentum either way,” says McMillan.
But McMillan isn’t in panic mode. “After a couple of good days, a bad day. The market is uncertain, drifting up and down. … It will continue to react to daily news — like the inflation figure.”