US: S&P 500 Index -5.06%, Dow -5.21%, Nasdaq -5.06%
Europe: STOXX Europe 600 -5.01%, German DAX -5.30%, France CAC 40 -5.33%, U.K. FTSE 100 -3.66%
Asia: Japan Nikkei -8.13%, China Shanghai Composite -9.60%, Korea KOSPI -6.40%
10-Year Treasury yield: -1 basis points to 2.83%, WTI crude oil -10.13%, COMEX gold -1.48%
Global stocks continued to tumble amid ongoing volatility that left the S&P 500 Index down more than 10% from its most recent high (set just two weeks earlier) and pushed into negative territory on the year. Though several conditions contributed to the sell-off, the biggest factor was a stronger than expected January jobs report released February 2 that showed rising wage pressures, which increased concerns that inflation would pick-up and cause the Federal Reserve to raise interest rates more aggressively than expected. The initial selling pressure unmasked a variety of issues, including the extent to which investors had failed to hedge their downside risk. Overseas markets were not immune, as both European and Asian equities followed the U.S. lower. Despite the sell-off, Treasuries ended the week little changed, as the normal flight-to-safety trade was balanced by inflation and deficit concerns.
However, as Chief Investment Strategist John Lynch noted in a call to advisors, “it’s important to note that both interest rates and inflation remain low by historical standards, and this bout of volatility is more of a wakeup call for those investors who had grown complacent towards risk, as opposed to a sign of weakness in the broader economy.” On the contrary, as noted last week, economic data continue to point to solid and even accelerating growth, while corporate earnings are still expected to accelerate more than 10% over the balance of the year.
In the week ahead, markets will be closely eyeing a series of consumer and producer inflation data midweek, along with retail sales figures for last month; this ahead of housing starts and building permits, and the University of Michigan Sentiment survey on Friday. Turning to Europe, U.K. inflation is due out Tuesday, followed by gross domestic product (GDP) data for Germany, Italy, and the Eurozone on Wednesday before Germany’s Wholesale Price Index caps off the week. Key releases in Asia include Japanese producer prices on Monday and its GDP report on Tuesday; as well as a couple sets of manufacturing data to go along with industrial production and capacity utilization. Elsewhere, expect new loan growth and money supply data out of China to garner attention on Friday.
Please see the methodology and assumptions used in GWP.
IMPORTANT: The projections or other information generated by GWP regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Results may vary with each use and over time.