Investors are trying to establish whether last week’s market sell-off was a hiccup or pullback.
U.S. stocks were trading mixed in afternoon trading as Wall Street tries to rebound from last week’s big sell-off sparked by turbulence in emerging markets.
Last week’s negative tone spread to Asia Monday where markets took a beating as investors there reacted to ongoing turmoil in emerging markets and uncertainty over expected further reductions in Federal Reserve stimulus.
The Dow Jones industrial average was helped by an earnings beat and stock buyback announcement from heavy equipment maker and economic bellwether Caterpillar.
In late afternoon trading, the Dow was up 0.3% to 15,926. The Standard & Poor’s 500 index was up 0.1% to 1,792 and the Nasdaq composite index fell 0.4% to 4,110.
The S&P 500 fell 2.6% last week, its worst week since June 2012, and the Dow dropped 3.5%.
Trading was tentative in the early going as investors weigh whether last week’s tumult was the start of a bigger decline or so-called price correction of 10% or more.
Wall Street is hoping the market bounces back as it has most of the time after big weekly declines the past few years. Research by Birinyi Associates shows that there have been nine other weekly declines greater than 2.5% since 2011. The next week, on average, the S&P 500 gained 0.8% and traded higher 56% of the time, according to Kevin Pleines of Birinyi.
Before the opening bell, Caterpillar reported fourth-quarter earnings per share and revenues that topped Wall Street expectations. The earnings beat helped boost investor sentiment as it reaffirmed investors expectations for an improving U.S. economy in 2014. Shares of Caterpillar jumped more than 5% to $91.02
Wall Street will digest a large number of earnings reports this week, with more than 125 S&P companies reporting earnings, including iPhone maker Apple after today’s close. Investors will also be closely watching the Federal Reserve meeting on Wednesday to see if the Fed makes any changes to its timetable for dialing back on its stimulus program. The Fed started “tapering” its bond-buying program this month, which has added to the market turbulence as global markets adjust to a world of less, rather than more, stimulus.
For the developed markets like the U.S., “the turmoil in emerging markets seems to have provided the catalyst to justify investors taking a further round of profit-taking ahead,” says John Stoltzfus, chief investment strategist at Oppenheimer.
But the recent pullback, which many on Wall Street have been expecting, is not likely to result in a massive downdraft, he adds.
“A desire for a pullback from many corners of the market after a banner year for stocks in 2013 has set the stage for ‘more than a trim,’ but likely not much more than a haircut for stocks at this time,” Stoltzfus told clients before the market open.
Investors did not run to safer assets in early trading Monday as they did at the end of last week. The yield on the 10-year Treasury bond actually rose to 2.76% from 2.72% on Friday. Gold, another haven, was down more than $4 an ounce. Both moves suggest investor fear is not as acute as it was during the big sell-off on Thursday and Friday.
On Friday, the Dow Jones industrial average finished down 2% at 15,879 and the Standard & Poor’s 500 fell 2.1% to 1,790. The Nasdaq composite fell 2.2% to 4,128.
Japan’s Nikkei 225 sank 2.5% Monday to 15,005.73 as the dollar edged higher to 102.65 yen from 102.38 late Friday. The yen has strengthened significantly in the past few days, which is negative for export stocks. Hong Kong’s Hang Seng index lost 2.1% to 21,976.10 and China’s Shanghai composite index dropped 1% to 2,033.20.
In Europe, the chief regional bourses carried over a downward trajectory from the tail end of last week. Britain’s FTSE 100 index led regional decliners — off 3.3% to 6,550.66. Germany’s DAX index fell 0.5% to 9,349.22 and France’s CAC 40 index dropped 0.4% to 4,144.56.
Emerging markets have been propped up for years by investors seeking higher returns using a tide of so-called “easy money” from the Fed and other central banks but now that the end for those policies looks to be near, some investors are fleeing stocks.
But it is not immediately clear if the dramatic declines seen on Friday are the result of a temporary blip or a more entrenched negative view of the market.
“Residual jitters following Friday’s bloodbath on Wall Street continue to ripple across the financial markets: Asian shares plunged at the open of the trading week and European markets are in negative territory in early trade. S&P 500 futures are trading firmly higher, however, suggesting underlying sentiment is on the mend and the current dour mood reflects catch-up selling rather than a fresh round of disheartening news-flow,” said Ilya Spivak, currency strategist at DailyFX, in emailed comments.
Investors are looking ahead to a two-day meeting of the Fed that starts Tuesday, where officials are expected to reduce the central bank’s monthly bond buying by another $10 billion to $65 billion.
Recent signs of a sustained recovery in the world’s biggest economy will play a big role in the decision by Fed officials to scale back stimulus for a second time.
“The growing turmoil in emerging markets is inflicting damage on risk assets across the board and no letup is expected in the near term,” said Mitul Kotecha, head of global markets research for Asia at Credit Agricole CIB, in a report.
Contributing: Associated Press