Investors flee stocks

The rout in emerging-market equities has spread to developed-market stocks, with Japan the hardest hit.

The continuing emerging-market sell-off and some disappointing US economic data undermined confidence in developed markets this week. In January, the American manufacturing sector suffered the biggest drop in activity since the global financial crisis, while new orders slid dramatically.

Japan's Nikkei is the year's worst-performing major stock market so far, having lost 14%, while the main European indices and America's S&P 500 are down 7% and 6% respectively.

Bond investors will feel more cheerful, however the yield on the ten-year US Treasury bond slipped to a three-month low of 2.6%, reflecting rising prices, as nervous investors abandoned stocks for traditional safe havens.

What the commentators said

tapering

But the real worry for now is that contrary to popular belief the US economy won't reach escape velocity' and start a sustainable recovery this year. In short, "hopes for economic growth and the profit growth that come with it got too high".

That's for sure, said Michael Mackenzie in the Financial Times. Earnings growth over the past two years has been pedestrian, even as the S&P has gained 54%, including reinvested dividends. Sales growth still hasn't really taken off. Results for the fourth quarter of 2013 are pointing to a rise of 0.8%, down from 3% in the third quarter. And profit margins are already historically high. Investors may finally be starting to realise they've bid stocks up too high.

All the same, fears of a renewed slump in US growth look overblown, reckoned Capital Economics. The second half of 2013 was "very strong, and there's no obvious reason why the recovery should suddenly collapse". The unusually severe weather is more than likely the key reason for the data disappointments.

This could continue to affect the data for a while so today's jobless figures may be subdued. But with a stronger Europe offsetting slower emerging markets, and government spending squabbles in the US having less impact this year, America looks in solid shape. It should manage to expand by 2.5% this year.

Recommended

Why investment forecasting is futile
Investment gurus

Why investment forecasting is futile

Every year events prove that forecasting is futile and 2020 was no exception, says Bill Miller, chairman and chief investment officer of Miller Value …
21 Jan 2021
Why investors should beware of India’s surging stockmarket
Emerging markets

Why investors should beware of India’s surging stockmarket

The BSE Sensex benchmark index has soared by 90% since March, largely driven by foreign investors. But India's bull market is very vulnerable.
15 Jan 2021
US stocks are obviously in a bubble. But is it a rational bubble?
US stockmarkets

US stocks are obviously in a bubble. But is it a rational bubble?

Everyone wants to know if the US stockmarket is in a bubble. But that is the wrong question, says Merryn Somerset Webb. Of course it’s a bubble. The r…
14 Jan 2021
Yes US stocks are in a big bubble. But when will it burst?
US stockmarkets

Yes US stocks are in a big bubble. But when will it burst?

There are plenty of indicators to suggest that US stocks are in a massive bubble right now, says John Stepek. Here, he looks at what might pop it.
11 Jan 2021

Most Popular

A simple way to profit from the next big trend change in the markets
Investment strategy

A simple way to profit from the next big trend change in the markets

Change is coming to the markets as the tech-stock bull market of the 2010s is replaced by a new cycle of rising commodity prices. John Stepek explains…
14 Jan 2021
Forget austerity – governments and central banks have no intention of cutting back
Global Economy

Forget austerity – governments and central banks have no intention of cutting back

Once the pandemic is over will we return to an era of austerity to pay for all the stimulus? Not likely, says John Stepek. The money will continue to …
15 Jan 2021
Here’s why markets have shrugged off the US political turmoil
Investment strategy

Here’s why markets have shrugged off the US political turmoil

Despite all the current political shenanigans in the US, markets couldn’t seem to care less. John Stepek explains why, and what it means for your mone…
7 Jan 2021
Free 6 issue trial then continue to