“What the market is focused on is Chinese hard-landing fear, oil prices and the strength in the dollar”, said Phil Orlando, who helps oversee $360 bn (€330.5bn) as chief equity-market strategist at Federated Investors in New York.
“We haven’t hit bottom yet. That’s when we start talking about the need to retest the summer lows and holding at that level to take us to long-term support,” he said.
Global equities’ worst-ever start to a year is deepening as oil continues its collapse and a slowdown in China weighs on sentiment. Japanese shares joined benchmark indexes in China and Europe in tumbling into a bear market yesterday. Futures markets for West Texas Intermediate crude — the US benchmark — slumped below $28 a barrel.
About $2.2tn has been wiped off the value of US stocks this year, with the S&P 500 down 8%.
And any rallies are getting shakier. Nerves are weakening in a market where everything from China to oil and the Federal Reserve are proving capable of knocking equities down at any time.
It’s a reversal of the optimism that underpinned the last three years of the bull market, when traders viewed bad news as transitory and used declines as opportunities to buy the dip.
“A few people are calling this a good buying opportunity, but nobody seems willing to really stick their neck out,” said Ross Yarrow, director of US equities at Robert W Baird in London. “All the concerns go back to China and oil. We’re already seeing a big impact in the lack of trade across the world. There isn’t much out there that can really support a lasting rally,” he said.
The main US equity benchmark up to Tuesday was 13% below its all-time high set in May, after rallying to within 1% of the record as recently as November 3.
The S&P 500 trades at 15.1 times the forecast earnings of its members, in line with the index’s average of the past five years. It is more expensive than developed markets in Europe, where the Stoxx 600 Index trades for 13.8 times estimated earnings.
Investors are keeping close watch on progress in the economy to gauge the potential pace of interest-rate increases by the Federal Reserve. The central bank’s next policy meeting concludes on Wednesday next.
Data published yesterday showed the cost of living in the US fell in December, led by a commodities’ slump that is roiling global markets. Excluding food and fuel, the core index rose less than forecast with the smallest gain in four months.
A separate report showed new-home construction unexpectedly fell in December, indicating the industry lost some momentum entering 2016. US permits, a proxy for future construction, also fell on a decline in applications for multi-family projects.
Concerns about weaker growth are overshadowing the corporate earnings season, where most of the few companies that have reported so far have exceeded estimates. Verizon Communications, General Electric and Starbucks are among S&P companies scheduled to release financial results this week. n Bloomberg