Investor sentiment, however, remains susceptible to the volatility that has rocked markets since October.
US stocks climbed on tech strength, trimming recent losses from the sharp declines across asset classes during Tuesday’s session. Treasuries erased a drop and the dollar fell amid speculation the Federal Reserve may soften its policy stance. All major benchmarks were higher, with the Nasdaq 100 Index leading gainers and erasing more than half of Tuesday’s decline. Retailers and media companies paced the gains in the S&P 500 Index. Apple, which had lost 7.5% in the first two days of the week, rose slightly.
The plunge in Apple on Tuesday hit suppliers in Asia, sending the leading benchmark tracking Asia-Pacific stocks lower. Oil rebounded from a one-year low that briefly sent it below $54, even as US president Donald Trump urged Saudi Arabia to keep lowering prices. Investors are weighing industry data that showed US crude inventories unexpectedly fell last week against doubts about Opec’s plans to cut output.
Investor sentiment remains susceptible to the volatility that’s rocked markets since October. Traders are having to contend with the Trump Administration’s trade war, as well as the president’s calls on the Federal Reserve to back off from raising rates as corporate credit spreads at two-year highs reflect investor angst about borrowing costs.
“We view the sell-off as overdone and a bull-market correction, with valuations that have become more compelling,” Jason Draho, head of asset allocation, Americas, at UBS Global Wealth Management wrote in a note. “We recently increased our overweight to global equities on the view that the markets are already pricing in growth and trade risks.”
Asian stocks slipped as intensifying concerns about global economic growth gripped financial markets. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.45%. The Shanghai Composite Index swerved in and out of the red and was last down 0.05% . South Korea’s KOSPI retreated 0.4% and Japan’s Nikkei fell 0.35% . Indian shares declined for a second day on Wednesday, tracking weakness in broader Asian markets, due to heightened concerns about global economic growth as crude oil prices struggled to hold ground.
Tuesday’s losses were led by the technology sector, as investors lightened holdings of FAANG shares — Facebook, Apple, Amazon, Netflix and Google — the group that had propelled the Wall Street’s decade-long bull market. But sentiment appeared to recover slightly as Brent crude rebounded almost 2% after a 6% slide, MSCI’s Asia ex-Japan index closed flat and the main all-country equity benchmark attempted to snap two days of falls.
European equities rose 0.4% , with the battered tech and bank sectors both up around 0.8%. David Vickers, senior portfolio manager at Russell Investments, noted however that gloom has tended to deepen in volatile markets as the Wall Street session progresses and more company earnings emerge.
“High-flying momentum stocks have come off in a fairly spectacular fashion. At one point Apple and Amazon accounted for 40% of US equity gains and people were just recycling money into the winners,” Vickers said. “That’s come off the boil and set the cat among the pigeons… We’ve seen a lot of reflexivity, when selling begets selling, the market starts to turn over, people take profits, it leads to another leg down and so on.”
Markets also appear to be preparing for a loss of momentum in global economic growth as China takes a hit from Washington’s trade tariffs and the United States comes off the sugar-high of president Donald Trump’s tax cuts. Vickers said that after 20%-plus earnings growth at US companies, some investors were disappointed with signs this would slow to single digit as the stimulus effect wore off.
“If you have a market like the S&P500, which is two standard deviations expensive, it becomes difficult if you don’t think you will get the same kinds of earnings growth in future,” he added. Growth worries have also been revived by comments from US Federal Reserve officials who suggested economic outlook concerns could slow the pace of its monetary policy tightening cycle, or even end it.