US stocks slumping, reversing much of yesterday’s gains, as weak GDP growth in the euro zone combined with China’s central bank boosting reserve requirements for banks weighed on stocks.
Selloff comes just one day after the market rallied on optimistic comments that the EU would support debt-laden Greece.
“Just as one fire has been put out for now (Greece), the one that originally caused jitters in the markets in mid-January, China, now flares up again,” says Miller Tabak equity strategist Peter Boockvar. “This proactive step is a good thing longer term but rarely is a smooth process in the short term.”
Dow industrials, which fell as much as 160 in earlier trading, were recently off 50 at 10094. S&P 500 off 4 at 1075.
Keep in mind the S&P 500 has closed down 15 of the last 18 Fridays before Presidents Day weekend, Ticonderoga Securities technicians write, as investors tend to prefer holding cash over risky assets through the long weekend, “especially in the current climate.”
Looking to next week, daily indicators suggest stocks could tick up, but the longer term still looks bearish.
“Technically we have no problem with people trying to enter this market for a few percentage points if their investment horizon is short, but everything else is extremely risky at this point,” firm writes.
Also affecting today’s trading was the January retail sales report, which came in better than expected. Retail sales posted a broad-based increase, rising 0.5% from December and 4.7% from a year earlier, showing consumers aren’t behaving quite as frugally despite high unemployment rate and tight credit conditions.
Still, it’s not exactly surprising that the annual pace of retails sales has essentially rebounded to pre-crisis levels, James Picerno writes at The Capital Spectator. “Recognizing that the risk of seizure in the world’s financial system has fallen dramatically, consumers are spending again in something closer to the normal trend,” Picerno says.
He believes economy’s entering the “post-crisis challenge” in which the biggest challenges will be generating and maintaining growth absent government support. “High levels of debt on the government and household balance sheets threaten to make the second stage far more precarious than the recent snap-back numbers suggest,” he adds.
And while retail sales were stronger this morning, worse-than-expected consumer sentiment puts the sustainability of the sales in question, the Pragmatic Capitalist says. “All in all, there is little to justify the risk trade in the near-term,” blog says. “The reflation trade has become the implosion trade thanks to the euro.”
With euro concerns likely to remain in the spotlight for at least the next few weeks, “it remains difficult to envision an environment where risk assets move substantially higher from these still relatively high levels,” blog says, noting stocks are only 7% off the highs following a roaring 60% rally.
(Brendan Conway contributed to this post.)