The US stock market felt serious pressure from a trio of negative market forces on Friday, each of which is outlined in detail below.
The overriding theme is that investors are getting increasingly worried about an economic slowdown — a sentiment that wasn’t helped by a spate of negative global manufacturing data.
There’s an old saying that when it rains, it pours. And unfortunately for investors everywhere, that rang true in the stock market on Friday.
It was ultimately a perfect storm of conditions. Even though US shares closed at a five-month high on Thursday, repeated signs of an economic slowdown in the prior weeks left them in a vulnerable position.
Then, as US investors slept, weak European manufacturing data sent the yield on 10-year German government bonds into negative territory for the first time in more than two years. European shares traded sharply lower in response.
An eerily similar scenario played out in the US not long thereafter. After a report showing manufacturing activity slumped to its lowest in two years, Treasurys tumbled, leading to a dreaded yield-curve inversion that hadn’t occurred since 2007.
That stoked already-simmering fears of a possible economic recession, and what followed was a weak and uncertain trading session.
All the while, as those forces played out on the surface, investors were showing their displeasure in another way for a solid week. According to data compiled by Bank of America Merrill Lynch, fund managers pulled loads of money of out stocks even before Friday’s sell-off.
It amounted to a vicious trifecta that handed US stocks their biggest drop in two months. And at a time when the market’s biggest tech stocks are under regulatory scrutiny and there are relatively few corporate earnings reports to move the dial, there doesn’t seem to be much relief on the horizon.
Even the Federal Reserve — which some experts point to as supporting the stock market with a newly accommodative monetary policy — will be powerless to help the market if the economy keeps trending lower, one expert says.
“The Fed can’t be dovish enough to support US equity markets given the acceleration in the global growth slowdown and eventual US slowdown,” Peter Cecchini, the global chief market strategist at Cantor Fitzgerald, wrote in a recent client note.
With all of that established, here’s a deeper dive on the …read more
Source:: Business Insider