A slide in Wall Street, involving fears over interest rates and reported Chinese cooling over US bonds, sent tremors around the world that an almost nine-year bull market in stocks was at an end.
A report that China, which already holds huge amounts of US debt, was beginning to cool on US bonds heightened fears over world interest rates at a time when President Donald Trump needs to sell huge amounts of US debt to fund his tax cuts and a vastly growing debt pile, said Peter Brown, director of Baggot Investment Partners in Dublin.
“Anything that scares people about world interest rates and bond markets” will be a theme for markets this year, said Mr Brown.
American stock indices, including the Dow Jones and S&P, which had initially slid later rallied as buyers returned to the market.
European stock indices in Frankfurt and Paris ended the session lower, though London’s Ftse 100 ended higher.
Billionaire bond manager Jeffrey Gundlach forecast in a year-ahead outlook that the S&P 500 will end the year with a negative return after a “pretty decent run” early in the year.
Others, including CLSA chief executive Jonathan Slone, argued that equity markets have enough momentum to keep rising.
US investors are waiting for the start of the so-called earnings season when the largest banks and companies in the world announce their year-end earnings, starting this week.
Chris Beauchamp, chief market analyst at online broker IG, said the Ftse escaped the losses even as US markets took “a brief dip into the red”.
He said the S&P 500 in the US was still healthy ahead of earnings season, while the US bond yields were “back on the agenda”.
“The decades-long downtrend in the yield is under threat again, and the usual suspects are out proclaiming this will sound the death-knell of the equity rally. This sounds awfully like one of those predictions that, six months down the line, seems very silly. After all, this equity rally has survived a lot worse,” said Mr Beauchamp.
“It will take more than just a shift in Chinese bond buying to undo this bull market. Indeed, the S&P 500 looks primed to register more record highs before earnings season gets under way in earnest on Friday.”
Additional reporting: Bloomberg