US, European Stocks Nosedived!

What an incredible week!

US and European stocks nosedived during the last two trading days.

This is how the mainstream media explains of the quasi-crash

From Bloomberg: (bold mine)

The global equity selloff that sent benchmark indexes to their worst week in four years played havoc with individual stocks and industries in the U.S. market.

To energy shares already snared in a bear market, add semiconductor stocks, which crossed the threshold by capping a decline of more than 20 percent. Apple Inc. also entered a bear market, while the Dow Jones Industrial Average entered a so-called correction with a decline of 10 percent from its last record. Biotechnology, small caps, media, transportation and commodity companies have also entered corrections.

The Standard & Poor’s 500 Index sank 3.2 percent on Friday to cap a weekly loss of 5.8 percent, the worst daily and weekly declines in almost four years. The benchmark gauge is down 7.5 percent from its last record in May, after dropping out of a trading range that has supported it for most of the year.

I’d add that it’s not just the daily or weekly activities that matters but the two-day quasi crash that should highlight this week’s losses.

That’s because as shown above,  the two day losses effectively contributed to the bulk (about 90%) of the weekly losses on various benchmarks. My tally board shows of the weekly and year to date performance:  Dow Industrials -5.82% y-t-d -7.65%, S&P -5.77% y-t-d -4.27% and Nasdaq -6.78% y-t-d +.63%

Yet the start of a new trend?

Before this week, U.S. equities had held their ground throughout 2015, weathering turmoil from Greece and headwinds including a strong dollar that threatened multinationals’ earnings and a more than 60 percent drop in oil prices.

The S&P 500 stuck within a range roughly tracking its 50-, 100- and 200-day moving averages, boosted by signs the economy is recovering and support from central banks. The benchmark index hadn’t had a decline of more than 5 percent all year, and hasn’t dropped more than 10 percent since 2011.

Correction or coming bear market?

 

More…

After the selloff, the S&P 500 is trading at 16.65 times earnings. That’s down from 18.9 times a month ago, which was near a five-year high, but still exceeds the five-year historical average of 16.1 times profit.

Data in the U.S. today showed an August factory orders index fell. Investors are watching economic data for clues on when the Fed will raise interest rates.

Slower global growth may cause the Fed to delay its first rate increase since 2006. Minutes of the central bank’s latest meeting, released earlier this week, showed officials are concerned about stubbornly low inflation even as the job market improves. Traders are now pricing in a 32 percent probability of a rate move at the September meeting, down from 50 percent before the release of the minutes.

The Chicago Board Options Exchange Volatility Index surged 46 percent to 28.03. The measure rallied 118 percent this week, the biggest five-day gain on record.

Investors are selling the biggest winners of 2015. Companies that have come to be known as the Fab Five -- Netflix Inc., Facebook Inc., Amazon.com Inc., Google Inc. and Apple Inc.-- have seen about $100 billion in market value erased over two days. Losses pushed the Nasdaq 100 Index down 7.4 percent over the past five days, the biggest weekly decline since May 2010.

Note again: utterances of the possible delay on the Fed’s rate hike.

Prior to yesterday’s bloodbath bond traders have already been scaling down on the odds of a rate hike. This only means that the much publicized FED rate hike has hardly been a big factor in the recent equity market and emerging market currency sell off.

Besides given the surge in financial market volatility, the Fed is unlikely to add to the current conditions by tightening. So rate hike looks like another Yellen-Fed poker bluff.

The Fed will likely go for another QE (QE 4.0) once the financial volatility (stock market selloff) intensifies.

Back to the report…

Broad based retreat

All 10 major groups in the S&P 500 retreated today. Technology companies dropped 4.2 percent, while energy and consumer discretionary shares slid more than 3.2 percent.

That’s Friday’s broad based bloodbath on Wall Street as shown by various indices.

The China domino effect and the Euro connect...

U.S. equities followed overseas markets lower, as the Stoxx Europe 600 Index tumbled 3.3 percent, extending its drop since April to almost 13 percent, and the MSCI All-Country World Index slid 2.7 percent to the lowest since October.

Equities continued to slide today after China released its weakest manufacturing data since the global financial crisis, which accelerated losses in riskier assets. Worries about the world economy had already been intensifying after China devalued its currency last week, compounded by uncertainty about what Federal Reserve inflation concerns portend for interest rates.

The German Dax and the Stoxx 600 has been severely mauled.

How about swooning emerging markets and the US dollar strength which are symptoms of the progressing US dollar liquidity crunch?

 

The periphery has now hit the core. The progressing decay of global asset bubble fostered by global central banks has not only been spreading but accelerating. All those massive easing (financial repression policies) seem to have hit a 'tipping point'.