Markets nervy of their own over-confidence :Mike Dolan
By Mike Dolan
LONDON, July 26 (Reuters) -Often the scariest thing in markets is a rout without a trigger.
People are still unsure about the precise cause of the October 1987 crash, for example. And when the Nasdaq clocked a 10% one-day drop in April 2000, marking the first pop in the dot.com bubble, there were blank stares and collective shrugs about just why that particular day hit so hard.
The latest shakeout of pricey megacaps has been modest by comparison. But there's been similar head-scratching as to why Wall St and global stocks registered their worst day since 2022 on Wednesday after hitting record highs earlier this month.
There's no shortage of theories. And long-term bears have been warning of a correction in overly concentrated stock indexes for more than a year now amid concern about excessive hype - and capex spending - surrounding artificial intelligence.
But there was no obvious smoking gun on Wednesday.
Pre-election jitters, China's worrying slowdown, earnings seasons outliers such as Tesla TSLA.O, and Japanese yen volatility have all been posited as potential culprits.
Whatever the 'real' answer is, it certainly wasn't worries about rising borrowing costs or higher-for-longer interest rates - the prime suspect in similar recoils this time last year and again in April.
If anything we saw the beginnings of a rotation from equities to bonds, as Federal Reserve easing bets went up a gear, Treasury yields skidded and central banks in China and Canada cut interest rates.
REARVIEW CLEAR
So is the sudden discomfort with expensive stocks a fundamental growth concern that's been off radar all year?
You'd think not just looking at the incoming corporate earnings season or Thursday's robust second-quarter U.S. gross domestic product release.
There's a high bar for companies looking to impress markets - but annual profit growth for the S&P500 is tracking 11.6% so far - a point higher than estimated on July 1, according to LSEG data. And analysts are expecting this to accelerate to roughly 15% for calendar 2025 - also one point higher than they were predicting just two months ago.
"We wouldn't say there has been any major incremental change in outlook from companies in early reporting to date," reckons Janus Henderson Investors portfolio manager Richard Clode.
Slowing GDP then? Not a bit of it yet.
Thursday's update showed the U.S. economy grew to an above-forecast clip of 2.8% in the three months to June, registering solid gains in consumer spending and business investment and with easing inflation gauges.
ADJUST YOUR SET
To be fair, these Q2 GDP and the corporate reports are backward looking and the horizon may be murkier due to the increasingly uncertain November U.S election - where events have already been tumultuous this month.
Noel Dixon, global macro strategist at State Street Global Markets, thinks clients have been forced to "adjust their positions" given the sudden swing in election forecasts. What looked like a shoo-in for former-President Donald Trump now appears to be more of a toss-up, as Trump faces a "more formidable" opponent in Vice President Kamala Harris.
If excitement and momentum builds around Harris' chances, Dixon reckons, there could be some speculation about her apparent preference for higher corporate taxes and regulation. There's now even talk of a potential clean sweep of the White House and Congress by Democrats, an outcome that seemed unthinkable at this time last week.
But it still seems hasty, or at least very early, to bet the farm on such uncertain outcomes.
That's not least because the Fed meets next week and is now nailed on to deliver its first rate cut by September - with one eye on a national employment report on Friday that seems to be gaining more of the central bank's attention.
While markets are ascribing virtually zero chance that the Fed will make a move on Wednesday, comments from a former Fed official raised eyebrows in this week's volatile trading.
In a Bloomberg op-ed published on Wednesday, former New York Fed boss Bill Dudley called for an immediate rate cut due to labor market cooling and the increasing likelihood of a recession. He cited the so-called Sahm Rule, pointing out that the speed at which a rising jobless rate presages recession is now close to being triggered.
"I've changed my mind. The Fed should cut, preferably at next week's policy meeting," wrote Dudley. "Although it might already be too late to fend off a recession by cutting rates, dawdling now unnecessarily increases the risk."
Could that be enough to trigger a market rethink on "what the Fed knows that we don't know"?
That seems a stretch.
But evoking the 'R' word now is notable, given the near consensus on a soft landing ahead.
Perhaps this suggests the market is simply too priced for perfection and now becoming fearful of its own exuberance.
And as is often the case, what markets fear more than anything is themselves.
The opinions expressed here are those of the author, a columnist for Reuters.
S&P500 breaks calm streak with 2%+ drop https://tmsnrt.rs/3A8anwg
Lofty US stock valuations https://tmsnrt.rs/3LCdXBB
US GDP beats forecasts and still humming https://tmsnrt.rs/4fiQvH2
US 2025 earnings growth estimates still climbing https://tmsnrt.rs/4dfGp8a
World Economy 'Surprises' at most negative in two years https://tmsnrt.rs/4ff0TQ1
'Sahm rule' on US unemployment and recessions https://tmsnrt.rs/3VNqIxT
by Mike Dolan X: @reutersMikeD; Editing by Stephen Coates
متعلقہ اثاثے
تازہ ترين خبريں
دستبرداری: XM Group کے ادارے ہماری آن لائن تجارت کی سہولت تک صرف عملدرآمد کی خدمت اور رسائی مہیا کرتے ہیں، کسی شخص کو ویب سائٹ پر یا اس کے ذریعے دستیاب کانٹینٹ کو دیکھنے اور/یا استعمال کرنے کی اجازت دیتا ہے، اس پر تبدیل یا توسیع کا ارادہ نہیں ہے ، اور نہ ہی یہ تبدیل ہوتا ہے یا اس پر وسعت کریں۔ اس طرح کی رسائی اور استعمال ہمیشہ مشروط ہوتا ہے: (i) شرائط و ضوابط؛ (ii) خطرہ انتباہات؛ اور (iii) مکمل دستبرداری۔ لہذا اس طرح کے مواد کو عام معلومات سے زیادہ کے طور پر فراہم کیا جاتا ہے۔ خاص طور پر، براہ کرم آگاہ رہیں کہ ہماری آن لائن تجارت کی سہولت کے مندرجات نہ تو کوئی درخواست ہے، اور نہ ہی فنانشل مارکیٹ میں کوئی لین دین داخل کرنے کی پیش کش ہے۔ کسی بھی فنانشل مارکیٹ میں تجارت میں آپ کے سرمائے کے لئے ایک خاص سطح کا خطرہ ہوتا ہے۔
ہماری آن لائن تجارتی سہولت پر شائع ہونے والے تمام مٹیریل کا مقصد صرف تعلیمی/معلوماتی مقاصد کے لئے ہے، اور اس میں شامل نہیں ہے — اور نہ ہی اسے فنانشل، سرمایہ کاری ٹیکس یا تجارتی مشورے اور سفارشات؛ یا ہماری تجارتی قیمتوں کا ریکارڈ؛ یا کسی بھی فنانشل انسٹرومنٹ میں لین دین کی پیشکش؛ یا اسکے لئے مانگ؛ یا غیر متنازعہ مالی تشہیرات پر مشتمل سمجھا جانا چاہئے۔
کوئی تھرڈ پارٹی کانٹینٹ، نیز XM کے ذریعہ تیار کردہ کانٹینٹ، جیسے: راۓ، خبریں، تحقیق، تجزیہ، قیمتیں اور دیگر معلومات یا اس ویب سائٹ پر مشتمل تھرڈ پارٹی کے سائٹس کے لنکس کو "جیسے ہے" کی بنیاد پر فراہم کیا جاتا ہے، عام مارکیٹ کی تفسیر کے طور پر، اور سرمایہ کاری کے مشورے کو تشکیل نہ دیں۔ اس حد تک کہ کسی بھی کانٹینٹ کو سرمایہ کاری کی تحقیقات کے طور پر سمجھا جاتا ہے، آپ کو نوٹ کرنا اور قبول کرنا ہوگا کہ یہ کانٹینٹ سرمایہ کاری کی تحقیق کی آزادی کو فروغ دینے کے لئے ڈیزائن کردہ قانونی تقاضوں کے مطابق نہیں ہے اور تیار نہیں کیا گیا ہے، اسی طرح، اس پر غور کیا جائے گا بطور متعلقہ قوانین اور ضوابط کے تحت مارکیٹنگ مواصلات۔ براہ کرم یقینی بنائیں کہ آپ غیر آزاد سرمایہ کاری سے متعلق ہماری اطلاع کو پڑھ اور سمجھ چکے ہیں۔ مذکورہ بالا معلومات کے بارے میں تحقیق اور رسک وارننگ ، جس تک رسائی یہاں حاصل کی جا سکتی ہے۔
