US stocks bounce after run of bruising declines

Investors had been unnerved by partial US government shutdown and slowing growth

US president Donald Trump addresses US armed forces members on a Christmas Day video conference call in the Oval Office at the White House in Washington . Photographer: Zach Gibson/Bloomberg

US president Donald Trump addresses US armed forces members on a Christmas Day video conference call in the Oval Office at the White House in Washington . Photographer: Zach Gibson/Bloomberg

 

US stocks rose in early trading on Wednesday, offering a welcome reprieve for Wall Street after a period of chaotic trading in the run-up to Christmas had helped wipe more than $3 trillion in value from the S&P 500 this month.

With major equity markets shut in Europe, attention switched to the US where the benchmark S&P 500 climbed 1.3 per cent in the minutes after the opening of trading.

The benchmark index suffered its largest ever Christmas Eve fall, as concerns over slower global growth and political uncertainty in Washington rattled investors. Asian equities had tumbled in sympathy on Tuesday, but Japanese markets clawed back some of those losses on Wednesday.

An unusually bruising December for investors has been exacerbated in recent days by the partial shutdown of the US government, a report that president Donald Trump had considered trying to dismiss Federal Reserve chairman Jay Powell and an effort by Treasury secretary Steven Mnuchin to calm investors nerves that appeared to backfire.

“Current unknowns, from Fed policy to trade wars and now White House turmoil, are proving too heavy a weight to allow US equity markets to find their footing,” said Nicholas Colas, co-founder of DataTrek.

This month’s steep declines in US stocks saw the S&P 500 on Monday briefly fall 20 per cent from its previous intraday peak in September. This tumble in the S&P 500 remains just shy of a bear market, typically defined as a 20 per cent drop from a previous closing high. The widely tracked index has lost more than $5 trillion in value from its September record, according to Howard Silverblatt, a senior index analyst at S&P Global.

Although global equities had been under pressure for much of December, the sell-off intensified after the Fed raised interest rates for a fourth time this year and signalled that it would continue to tighten monetary policy by trimming its multi-trillion-dollar balance sheet. Some investors are concerned that the Fed’s approach will leave the US economy more vulnerable to the weaker pace of growth that has taken hold elsewhere.

In a Christmas Day media briefing at the Oval Office, Mr Trump accused the Fed of increasing rates too quickly. When Mr Trump was asked whether he had confidence in Mr Mnuchin, the president replied: “Yes I do. Very talented guy, very smart person.” Questioned about Mr Powell, Mr Trump said: “Well, we’ll see. But they [THE FED]are raising interest rates too fast, that’s my opinion.”

Mr Mnuchin has come under scrutiny in recent days after saying on Sunday that the heads of the country’s biggest banks had confirmed they had “ample liquidity for lending to consumer, business markets, and all other market operations” - an issue that had not been a widespread point of concern.

Michael Hasenstab, chief investment officer for Franklin Templeton’s global bond funds, warned that investors should steel themselves for more market tantrums in 2019, as tighter US monetary policy once again hits bond prices and further undercuts support for financial markets. “There is a lot of entrenched interest rate risk in all financial markets right now,” he said.

The sharp souring in sentiment towards equities has stirred a rally in haven assets. The yield on the benchmark 10-year Treasury has fallen from 3.24 per cent in early November to 2.75 per cent on Wednesday. At the same time, the gold price has jumped more than 5 per cent since the middle of last month.

Oil markets also staged a rally on Wednesday morning, with Brent Crude rising 2.7 per cent to $51.83, helping to recover some of its 6.2 per cent decline on Monday.

Although Wall Street has been the epicentre of December’s turbulence, other major markets have also been affected. China’s benchmark CSI 300 closed down 0.5 per cent on Wednesday, leaving it 26 per cent lower this year. In South Korea the Kospi shed 1.3 per cent. Despite Wednesday’s recovery, Japan’s Topix has fallen more than 20 per cent since the start of 2018.

Barring a stunning rally in Tokyo, Japanese equities are poised to end the year in bear market territory, and market strategists are warning of an “unconstructive” start to 2019. - Financial Times