While you were sleeping: Stocks take breather

Friday 10th June 2016

Equities on both sides of the Atlantic fell as investors reassessed whether the outlook for economic growth warrants valuations near record highs.

Investors are also repositioning for the two-day Federal Open Market Committee meeting, scheduled to start on June 14.

Wall Street slid. In 2.48pm New York trading, the Dow Jones Industrial Average inched 0.09 percent lower. In 2.33pm New York trading, the Standard & Poor’s 500 Index slid 0.26 percent. In 2.48pm trading, the Nasdaq Composite Index fell 0.27 percent.

“With the market being priced where it’s at, there’s not a lot of room for air,” said Jim Davis, regional investment manager at the Private Client Reserve of US Bank, told Bloomberg. “I would not be surprised to see it back off a little more in the next week. The market has to navigate some choppy waters between now and mid-July, with the Fed next week and the Brexit vote the following.”

The Dow fell as declines in shares of Caterpillar and those of American Express, down 1.1 percent and 0.9 percent respectively, outweighed advances in shares of Nike and those of Johnson & Johnson, last trading 1.3 percent and 1 percent higher respectively.

"What we have seen is that the public has been cautious and that wall of worry is ... challenging valuations ahead of some discreetly risky events and today's profit taking is almost a natural process," Julian Emanuel, a US equity and derivative strategist at UBS, told Reuters.

There were positive signs on the US economy. After last Friday’s surprisingly disappointing US nonfarm payrolls data, the latest report offered signs that the labour market remains solid. A Labor Department report showed that initial claims for state unemployment benefits unexpectedly fell, sliding 4,000 to a seasonally adjusted 264,000 for the week ended June 4.

"The hand-wringing over the May jobs report may be misplaced," Joel Naroff, chief economist at Economic Advisors in Holland, Pennsylvania, told Reuters.

Separately, a Commerce Department report showed wholesale inventories rose 0.6 percent in April, the biggest increase in 10 months, following a 0.2 percent gain in March.

In Europe, the Stoxx 600 Index ended the session with a decline of 1 percent from the previous close. France’s CAC 40 index fell 1 percent, the UK’s FTSE 100 index dropped 1.1 percent, while Germany’s DAX index shed 1.3 percent.

Here, European Central Bank President Mario Draghi called on the region’s governments to revive output by implementing the necessary structural reforms.

"Monetary policy does not exist in a vacuum," Draghi said in Brussels.

“Monetary policy can act decisively to support demand, to stabilise inflation expectations and to avert second round effects on wages and prices, which is exactly what the ECB has done over the past two years,” Draghi said. “But the orientation of other policies also influences the speed with which output returns to potential. So if other policies are not aligned with monetary policy, inflation risks returning to our objective at a slower pace.”

BusinessDesk.co.nz

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