Wall Street faces stomach-churning swings as economic uncertainty grows

pulse 02:48 - 10 December 2018

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Last week, elements of all of those combined to drive the S&P 500 down by 4.6 percent, its worst weekly drop since March and one marked by stomach-churning price swings.

When a trade war broke out between the world’s two largest economies in June, investors barely blinked. After the Federal Reserve raised interest rates — often a reason for investors to sell stocks — the markets continued to climb. As some of the world’s largest economies began to slow down, U.S. markets largely shrugged it off.

Not anymore.

Last week, elements of all of those combined to drive the S&P 500 down by 4.6 percent, its worst weekly drop since March and one marked by stomach-churning price swings. Stocks are now down 1.5 percent this year.

More volatility could be in store, as investors assess the allegations by prosecutors that President Donald Trump sought to secretly do business in Russia and directed illegal payments to ward off a potential sex scandal during his 2016 campaign for the White House.

The arrest of a prominent Chinese technology executive, meanwhile, has added new strains to the relationship between Washington and Beijing, which face a March deadline to reach a trade deal. On Sunday, China summoned the U.S. ambassador in Beijing to protest the arrest, while Robert Lighthizer, who is leading the talks with China, said he considered March 1 to be a “a hard deadline” for the trade negotiations.

“Every eye is going to be focused on every piece of commentary on this trade deal,” said Rick Rieder, chief investment officer of global fixed income at BlackRock, which manages more than $6 trillion in assets. “Because the impact on growth is so significant.”

And investors are growing more concerned about the outlook for corporate profits next year, despite third-quarter results that showed that profits at S&P 500 companies rose at the fastest pace since 2010. Instead of the strong results, investors zeroed in on commentary from executives about whether next year might mark the beginning of the end for the second-longest business cycle expansion on record.

“We’re very mindful once again where we’re at in the cycle, Gregory Carmichael, chief executive of the Cincinnati-based lender Fifth Third said at a conference last week. “We’re well-positioned to deal with the downturn in the economy, and we’ll be very cautious.”

The New York Times