Thursday, 21 January 2016

Markets plunge but US stocks manage late rally

Markets tumbled on Wednesday.

In Asia, the Nikkei 225 plunged 3.7 percent, taking its fall from its June 2015 peak to 21.3 percent and confirming a bear market. The Shanghai Composite fell 1.0 percent.

In Europe, the STOXX Europe 600 plunged 3.2 percent, hitting its lowest level since December 2014.

The US stock market also opened on a very weak note on Wednesday, the S&P 500 falling as much as 3.7 percent at one point.

However, a late rally helped the S&P 500 close down just 1.2 percent to its lowest level since April 2014.

In other markets, US crude oil plunged 6.7 percent to its lowest settlement since May 2003 while the yield on the US 10-year Treasury note fell seven basis points to 1.99 percent.

While the intra-day reversal on Wednesday gave some investors hope that at least a short-term bottom has been reached, others remain cautious.

Scott Minerd, chief investment officer of Guggenheim Partners, thinks that the S&P 500 will drop another 10 percent to 1,650 and oil could fall as low as $20 a barrel. Jeffrey Rottinghaus, a vice president and portfolio manager at T. Rowe Price, said stock prices could fall another 10 percent as the US economy slips into a mild recession.

Jeffrey Gundlach, co-founder of DoubleLine Capital, expects "a protracted decline in the S&P 500".

In contrast, Omar Aguilar, chief investment officer for equities at Charles Schwab Corp, thinks that the US economy "is stable" while Mihir Worah, co-manager of the Pimco Total Return Fund, expects oil prices “to move higher from current levels”.

David Herro, manager of the $24 billion Oakmark International Fund, said: “I don’t think the drop in equity prices is at all warranted by economic fundamentals.”

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