Stocks Climb but Remain on Track for Weekly Losses
August 16 2019 - 2:20PM
Dow Jones News
By Corrie Driebusch and Avantika Chilkoti
U.S. stocks climbed for a second consecutive session Friday but
remain on track for modest weekly losses as investors continue to
parse signs of slowing economic growth.
Positive developments around trade and reassurances of extra
stimulus from central bakers buoyed markets, which were rattled
earlier this week after weak data out of Germany and China
exacerbated fears of a potential recession. Concerns about
weakening corporate earnings and uncertainty over the pace of the
Federal Reserve's potential interest-rate cuts have added to the
unease.
Many investors have rushed to cut their exposure to riskier
stocks and instead sought the relative safety of U.S. government
bonds, which sent the yield on the 30-year Treasury bond to a
record low this week.
The Dow Jones Industrial Average is on track to end the week
down about 1.5%, despite Friday's rally of about 300 points, or
1.2%. The blue-chip index suffered its steepest loss of the year
Wednesday following the disappointing overseas data and ominous
signals from the bond market.
Sentiment appeared to shift Thursday after retail sales data
indicated American consumer spending had remained strong in the
face of global headwinds, countering weakness in the manufacturing
space.
The ever-shifting signals have left traders scrambling to keep
up.
"The volatility makes a difficult investing environment," said
Justin Wiggs, managing director of equity trading at Stifel
Nicolaus. "It seems to be equal parts people feeling they need to
be in motion and people feeling paralyzed."
If Friday's move holds, the blue-chip index will have closed up
or down at least 1% in all but one trading session this week.
Many traders and analysts said the next big catalyst for the
stock and bond market will likely come next week when Federal
Reserve Chairman Jerome Powell is scheduled to speak at the central
bank's annual retreat in Jackson Hole, Wyo. Investors are eagerly
awaiting any signals from Mr. Powell on how the recent escalation
in trade tensions between the U.S. and China could play into the
Fed's policy and whether it could mean more rate cuts in the coming
months.
The Fed cut short-term interest rates in late July, a move stock
investors cheered, but the latest batch of volatility has many
traders and analysts calling for additional intervention by the Fed
as Treasury yields have fallen precipitously.
The yield on 10-year Treasurys rose to 1.545% Friday, from
1.534% a day earlier. The 30-year bond slipped below 2% again and
was briefly as low as 1.979%, according to Tradeweb.
Earlier this week, so many investors piled into long-term U.S.
government debt that the yield on the 10-year Treasury note briefly
fell below two-year yields for the first time since 2007, an
inversion that is viewed by many as a signal that a recession could
be on the horizon.
Jose Marques of quantitative hedge fund Inferent Capital LLC
said he believes the recent volatility is part of a larger shift in
how markets trade, leaving it more difficult for investors to make
money. His fund invests in about 3,000 stocks at a
time--algorithms, rather than humans, drive the bets.
"What's changing every day is the relationships deep inside that
are generally getting faster and less predictable," he said. "You
can call that market efficiency, but it does make it harder to
extract trading profits from markets."
While data reveal stalling economies in Europe and China, in the
U.S. there are more positive signs. Consumer spending, which
accounts for more than two-thirds of the U.S. economic output,
appears to be healthy, with retail sales rising in July, the
Commerce Department said Thursday. New-home construction in the
U.S. fell in July, but residential building permits notched their
largest increase in roughly two years, according to data released
Friday.
Investors will be watching next week for any signs of progress
in the U.S.-China trade talks. President Trump said Thursday that
he plans to have a call with Chinese President Xi Jinping soon and
face-face negotiations on a possible trade deal will resume next
month.
Despite the volatile week, major indexes in Europe and Asia
finished Friday higher.
The Stoxx Europe 600 rose 1.2%, led by gains in its technology
and utilities sectors. A top official at the European Central Bank
said Thursday that it will announce a package of stimulus measures
at its next policy meeting in September that should exceed
investors' expectations.
In Asia, Hong Kong's Hang Seng gained 0.9%, while stocks in
Shanghai rose 0.3%. China's State Council pledged Friday to cut
financing costs for businesses and vowed better credit support for
companies with high creditworthiness
In commodities markets, U.S. crude rose 0.8%. Oil prices have
been volatile in recent sessions as tensions in the Strait of
Hormuz ratcheted up. This week, Gibraltar released an Iranian
tanker impounded in July, opening the door for Tehran to free a
British-flagged vessel it seized. Fears about a global slowdown
have also pressured oil as slowing economies can lead to weaker
consumption.
Rachael Levy and Anna Isaac contributed to this article.
Write to Corrie Driebusch at corrie.driebusch@wsj.com and
Avantika Chilkoti at Avantika.Chilkoti@wsj.com
(END) Dow Jones Newswires
August 16, 2019 15:05 ET (19:05 GMT)
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