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U.S. stocks track world markets deeper into the red U.S. stocks track world markets deeper into the red
(about 4 hours later)
Trading in U.S. stocks slipped deeper into the red Thursday afternoon, as equities markets overseas wobbled and investors worldwide worried about declining oil prices and watched for any signals on U.S. interest rates. Despite a rally late Thursday afternoon, the stock market closed in the red after another day of anxiety on Wall Street. Declines in prices reflected wobbly equities markets overseas, as the price of U.S. oil fell to its lowest level in almost 13 years and investors watched Washington for signals on interest rates.
Tracking a sell-off in global markets, the Dow Jones industrial average dropped 2.3 percent and the tech-heavy Nasdaq fell 1.3 percent by midafternoon as Federal Reserve chief Janet Yellen, in the Senate, faced a second day of questions in her semiannual testimony before Congress. Following a sell-off in Europe and Asia, the Standard & Poor’s 500-stock index closed down 1.2 percent, and the Dow Jones industrial average posted a 1.6 percent decline. Both indices were off more than 2 percent earlier in the day as Federal Reserve Chair Janet L. Yellen, in the Senate, faced a second day of questions in her semiannual testimony before Congress.
Yellen cautioned that the turbulence in markets at home and abroad has led to tighter financial conditions. If those conditions persist, she said, they could dampen U.S. growth. But Yellen pointed to strong hiring and robust consumer spending as signs that the recovery remains resilient and played down the risk that the nation was on the verge of another downturn. Yellen cautioned that the turbulence in markets at home and abroad has led to tighter financial conditions. If those conditions persist, she said, they could dampen U.S. growth. But Yellen pointed to strong hiring and robust consumer spending as signs that the recovery remains resilient, and she played down the risk that the nation was on the verge of another downturn.
“I would say there is always some chance of a recession in any year, but the evidence suggests that expansions don’t die of old age,” Yellen said Thursday before the Senate committee on banking. “I would say there is always some chance of a recession in any year, but the evidence suggests that expansions don’t die of old age,” Yellen said Thursday before the Senate Banking Committee.
The Fed raised its benchmark interest rate in December for the first time since the the Great Recession. At the time, the central bank had signaled it planned to hike four more times this year — a forecast that appears increasingly optimistic. Lawmakers grilled Yellen on whether the central bank might cut interest rates instead, or even move them into negative territory, as central banks in Europe, Sweden and Japan have. Yellen indicated that both scenarios were unlikely. The Fed raised its benchmark interest rate in December for the first time since the Great Recession. At the time, the central bank had signaled it planned to increase rates four more times this year — a forecast that appears increasingly optimistic. Lawmakers grilled Yellen on whether the central bank might cut interest rates instead, or even move them into negative territory, as central banks in Europe, Sweden and Japan have. Yellen indicated that both scenarios were unlikely.
[Lawmakers grill Fed chief in testy hearing on Capitol Hill][Lawmakers grill Fed chief in testy hearing on Capitol Hill]
Investors, though, seem pessimistic. Doubt has emerged over whether the economy will be robust enough to warrant additional increases in the interest rate in months to come.Investors, though, seem pessimistic. Doubt has emerged over whether the economy will be robust enough to warrant additional increases in the interest rate in months to come.
The probability of another rate increase before year’s end has plummeted to just 12 percent, as implied by the hedges that investors are buying against inflation and changing rates. Last week, that figure was above 46 percent, according to Bloomberg. The probability of another rate increase before year’s end has plummeted to just 13 percent, as implied by the hedges that investors are buying against inflation and changing rates. Last week, that figure was above 46 percent, according to Bloomberg News.
Indeed, some investors are even betting on a reduction in rates, noted James Bianco, the president of Bianco Research in Chicago.Indeed, some investors are even betting on a reduction in rates, noted James Bianco, the president of Bianco Research in Chicago.
“It’s a problem with their credibility,” he said of the central bank. “They seem to be talking one way, and the market seems to be pricing in a different way.”“It’s a problem with their credibility,” he said of the central bank. “They seem to be talking one way, and the market seems to be pricing in a different way.”
The news out of Yellen’s first round of testimony did nothing to calm jitters overseas. Tokyo’s Nikkei 225 declined 2.3 percent Thursday — and is off 17 percent for the year. Hong Kong’s Hang Seng Index fell 3.8 percent. Euro Stoxx 50 was down 3.9 percent. In London, the Financial Times Stock Exchange 100 index was trading 2.4 percent below Wednesday’s close. The news out of Yellen’s first round of testimony did nothing to calm jitters overseas. Tokyo’s Nikkei 225 declined 2.3 percent Thursday, off 17 percent for the year. Hong Kong’s Hang Seng Index fell 3.8 percent. Euro Stoxx 50 was down 3.9 percent. In London, the Financial Times Stock Exchange 100 index was trading 2.4 percent below Wednesday’s close.
“There’s total confusion right now,” Bianco added.“There’s total confusion right now,” Bianco added.
“We’re far from seeing a turnaround in bearish sentiment, and I think this will dominate markets for a while longer,” said Heinz-Gerd Sonnenschein, a strategist at Deutsche Postbank in Bonn, Germany, according to Bloomberg. “People were looking for catalysts to trigger a lasting rebound, but so far nothing has worked — not earnings season, economic data, central banks or very cheap valuations. Everyone is so nervous.” “We’re far from seeing a turnaround in bearish sentiment, and I think this will dominate markets for a while longer,” said Heinz-Gerd Sonnenschein, a strategist at Deutsche Postbank in Bonn, Germany, according to Bloomberg News. “People were looking for catalysts to trigger a lasting rebound, but so far nothing has worked — not earnings season, economic data, central banks or very cheap valuations. Everyone is so nervous.”
Since the beginning of the year, the Chicago Board Options Exchange Volatility Index has increased 44 percent, reflecting the fact that investors are trading in large volumes and are deeply uncertain about the direction of prices. Since the beginning of the year, the Chicago Board Options Exchange Volatility Index has increased 44 percent, reflecting the fact that investors are trading in large volumes and are deeply uncertain about the direction of prices.
[Feeling a little jumpy about the markets? Here’s what’s going on.][Feeling a little jumpy about the markets? Here’s what’s going on.]
By Thursday afternoon, oil prices were slumping. Futures for Brent crude oil, the international benchmark, were down 1.7 percent, indicating pessimism among traders about global demand. In the United States, West Texas Intermediate crude was trading at below $27 a barrel, or 2.9 percent below Wednesday’s close. Oil markets rallied Thursday afternoon as well. Futures for Brent crude oil, the international benchmark, were up 0.8 percent. In the United States, West Texas Intermediate crude was trading at 1.2 percent below Wednesday’s close.
Earlier in the day, traders bid that benchmark down to within pennies of the cheapest price recorded in the past year, which was $26.19 a barrel on Jan. 20. Earlier in the day, traders bid that benchmark down to $26.05, the lowest price for U.S. oil since 2003.
Fadel Gheit, an analyst at Oppenheimer & Co., said that prices for crude have tanked as Saudi Arabia — which long constrained production to protect prices — has instead let the oil flow to achieve its geopolitical objectives. Saudi Arabia seeks to counter the influence of Russia and Iran, two rival exporters, in the Middle East, while preventing the nascent U.S. shale industry from expanding further, he said. Fadel Gheit, an analyst at Oppenheimer & Co., said that prices for crude have tanked as Saudi Arabia — which long constrained production to protect prices — has instead cranked open the spigots to achieve its geopolitical objectives. Saudi Arabia seeks to counter the influence of Russia and Iran, two rival exporters, in the Middle East, while preventing the nascent U.S. shale industry from expanding further, he said.
Ultimately, Gheit argues, oil prices will increase again given global demand. In the meantime, though, the effects on the domestic U.S. oil industry and the broader domestic economy could be serious. Already this week, questions have emerged about the solvency of firms such as pipeline supplier Chesapeake Energy. Consumers, fearing the effects of oil-sector defaults, aren’t spending the money they’re saving at the pump, according to Gheit. Gheit said the oil market is in an overcorrection, and that prices will rebound at some point. “The question is not ‘If?’ ” he said. “It’s ‘When?’ and ‘By how much?’ ”
Until then, however, investors worry that U.S. oil and gas firms — and the broader domestic economy — could be in trouble. Already this week, questions have emerged about the solvency of firms such as Chesapeake Energy. Share prices for the Oklahoma City natural-gas driller have declined more than 91 percent over the past year.
Consumers, fearing the effects of shale-gas defaults, are not spending the money they are saving at the pump, according to Gheit.
“People are keeping their savings from oil prices for a rainy day,” he said, “and they think it’s going to rain soon.”“People are keeping their savings from oil prices for a rainy day,” he said, “and they think it’s going to rain soon.”
Geoffrey Sipes, a senior vice president at U.S. Trust, was less pessimistic. “We don’t think that this is the beginning of the end,” he said, arguing that banks’ exposure to bad loans to shale-gas companies is limited and that data on consumer spending and the labor market show the economy is fundamentally strong.
In any case, the decline in equities is an opportunity for investors with a long-term outlook, said Brian Youngberg, an analyst at Edward Jones in St. Louis. He said that investors who can accept volatility and losses in the short or medium term can buy assets at a bargain right now.
“Five to ten years from now, when they look back,” he said, “they’ll be happy they did add to their positions.”