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

Stockmarkets shrug off turbulence
Stockmarkets

Stockmarkets shrug off turbulence

Stockmarkets have hit their first bout of turbulence of the year, but most are clinging onto January’s gains.
4 Feb 2021
The FTSE 100 has clawed back above 7,000 – how much higher can it go?
UK stockmarkets

The FTSE 100 has clawed back above 7,000 – how much higher can it go?

The FTSE 100 index has risen to over 7,000 for the first time in over a year – it now sits just above where it was in 1999. But its era of neglect cou…
19 Apr 2021
The MoneyWeek Podcast: how to not lose money to inflation and financial repression
Investment strategy

The MoneyWeek Podcast: how to not lose money to inflation and financial repression

Merryn talks to Peter Spiller of the Capital Gearing Trust about how he navigated the last extraordinary year; what he's buying now; and how he plans …
16 Apr 2021
UK mid-cap stocks look forward to life after lockdown
UK stockmarkets

UK mid-cap stocks look forward to life after lockdown

The FTSE 250 hit an all-time high at the end of last week, as investors look to a post-lockdown recovery.
16 Apr 2021

Most Popular

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?
Bitcoin

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?

Dogecoin – a cryptocurrency created as a joke – has risen by more than 9,000% this year alone. Saloni Sardana looks at how something that began as an …
19 Apr 2021
Lab-grown meat: how “moo’s law” will drive innovation
Soft commodities

Lab-grown meat: how “moo’s law” will drive innovation

Jim Mellon and Anthony Chow, co-founders of Aim-listed Agronomics, explain why they believe that “cellular agriculture” will benefit from massive long…
16 Apr 2021
The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021