Wall Street Reactions to the Market Tumult
By WSJ Staff
A sea of red washed over the markets Friday.
Global-growth fears pummeled stocks and commodities around the world. In the U.S., the Dow and S&P 500 chalked up their worst one-day percentage losses since November 2011, falling 531 points and 65 points, respectively. Apple Inc., Microsoft Inc., and Nike Inc. were the top three percentage decliners on the Dow.
Crude oil fell 2% to $40.45, lowest close since March 2009. For the week, it slid 6.2%.
A surge in investor demand for assets considered safest during times of market stress sent the yield on 10-year U.S. Treasury bonds to 2.042%, its lowest level since April.
Wall Street does not seem to concerned by all the selling the past two days. Many said they had moved to cash in anticipation of increased volatility. And many said Friday’s tumult provides a buying opportunity. Here’s what some investors, traders, strategists and fund managers are saying about Friday’s selloff:
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Amid Market Rout, Banks Better Buffered than Before
“The mood is just sour all over the place, and just about everyone’s on vacation, making it worse,” said Damian Handzy, the chairman and chief executive officer of Investor Analytics, which provides risk management services to investment firms and hedge funds. He added that while the news was increasingly negative with the risks multiplying, one good piece of news was that U.S. banks appear to be far less vulnerable to a severe decline than they were before the financial crisis due to new regulatory requirements.
In the markets, many large institutional investors have already done the equivalent of battening down the hatches, in part because of the growing market turbulence and in part because so many people are on vacation in Europe and the United States. He said that many hedge funds he knows have already sold off some assets and parked their money in cash holdings, and even in those cases have diversified their cash holdings to avoid the risk of a counterparty failures. “My customers, investment management professionals, are mostly in cash to ride this out,” said Mr. Handzy, who has a PhD. in nuclear physics.
The biggest worry among his clients is the prospect of market contagion coming out of China. “That’s what people are worried could become a runaway train and has people concerned,” Mr. Handzy said. The concern is that investors sustaining heavy losses in the rapidly declining Chinese markets could sell off holdings in Europe and the U.S., accelerating the tumbling in those markets. –James Sterngold
A Good Time to Stay Out of the Market; Buying the Dip Causes Pain
Rachel Shasha, 34, a New York-based retail trader, picked a good time to stay out of the market. “A lot of funds are on vacation right now,” she said, herself enjoying the beach this week in Miami, Fla. “I expect they’ll come back after Labor Day and start buying again when they see everything on discount.”
The day was less relaxed for Steve Burns, a 42-year old full-time trader in Nashville, Tenn. After seeing the stock market start to slide, he bought into stocks expecting their prices to bounce back at key levels, a move that has worked for him many times before. But “there were no rallies today, just selling and selling,” he said. “It reminded me of 2008 when there were just no buyers present.” Mr. Burns, who has set up his account so that he would automatically exit trades after losing 1% of the investment, said he lost $2,700. – Daniel Huang
An ‘Ugly Day’ in Stocks Could Present Opportunities
The stock market was hit with a “solid dose of uncertainty” this week from inconclusive Fed meeting minutes to further signs of weakness in China, according to Andrew M. Brooks, vice president and head of US equity trading at T. Rowe Price Group. “It was a one-two punch” for the market, he says. Brooks says today’s selloff was a positive for valuations, giving investors an opportunity to buy equities at a discount. He adds that investors should remember that corporate balance sheets remain strong and M&A activity continues. Still, he says, “there are no two ways about it, it was an ugly day.” – Sarah Krouse
Stock Correction Opens Opportunities
Russ Koesterich, global chief investment strategist at BlackRock, the world’s largest asset manager, says the market rout has created opportunities for buyers across the world, particularly in Germany and the rest of Europe, where stocks are undervalued. “The stocks look relatively attractive,” says Koesterich. As for the US market drop, Koesterich says “the market was ignoring a lot of things for a long time and this has been building up.” — Kirsten Grind
Blame It on China
A slowing China stands behind an adjustment in growth, inflation and monetary-policy expectations across markets. And that shift has manifested itself in the selloffs investors witnessed in different markets over the past few days, and punctuated by Friday’s rout in equities markets, says Karl Schamotta, director of currency risk and strategy at Cambridge Global Payments. That adjustment by investors may lead to a bigger pullback in bullish dollar bets than the market’s seen. “We’re going through a bit of a paradigm shift,” Mr. Schamotta said. “People are questioning the beliefs that had carried the dollar higher, and equity markets higher, earlier this year.” The greenback fell 3.3% against the euro over the past three days to $1.1389. The dollar shed 1.9% versus the yen to Y122.05 since Tuesday. — James Ramage
China Market Drops ‘Really Sinking In’
Brian Collins, who chairs the city of Memphis’s pension investment committee, says the market jitters shows how the fall in Chinese stocks is “really sinking in.” But Collins, who oversees the city’s $2.2B pension fund, says in the long run he sees American and European economies being “extremely resilient.” The market falls won’t trigger any immediate changes in the pension’s strategy, Collins adds. “We can’t overreact to today’s news.” — Timothy W. Martin
Letting Off Some Steam’ Fuels Stock Selloff
Equity markets are oversold after Friday’s plunge, according to Philip Petursson, managing director for capital markets and strategy at Manulife Asset Management. “The reaction today was an overreaction to the realization that China and the rest of the world probably aren’t growing at a pace that a lot of investors thought,” he says. A steady stream of weak economic reports out of China has been building over the last month and Petursson thinks the correction could continue. “The selloff isn’t valuation driven. I don’t think it’s earnings driven either. It’s really just the market letting off some steam,” he says. “I certainly hope that’s the case.” Manulife’s asset allocation team has shaved some equity exposure, trimming from a 3% overweight position in equities to a 1% underweight position in the last three months. – Sarah Krouse
Some Stock Investors Are ‘Forced to Sell’
Mark W. Yusko, CIO at Morgan Creek Capital Management, the markets were additionally pulled downward by hedge funds and ETFs having rules-based triggers to sell. “They’re being forced to sell. It gets sold at any price. There is no thought,” said Mr. Yusko, whose firm handles $3.7 billion for endowments and wealthy families. Those factors “exacerbated” the market tumble across the globe. “What a day,” Mr. Yusko said. “The last couple of days clearly look more like a whole bunch of levered traders, having to liquidate in a forcible manner.” Over the weekend, Mr. Yusko says he will tell clients that the market fluctuation this year was anticipated and is healthy. — Timothy W. Martin
The Utility Investors’ Guide to a Meltdown
When the market melts down, Jay Rhame looks away. The utilities fund manager at Reaves Asset Management doesn’t want to see quotes and screens, or worry about how a slowdown in China could impact share prices for a company that makes electricity in the US. He spends the day pumping data and information into the formulas Reaves uses for estimating future revenues and earnings at the companies they invest in. “I just try to throw up a model and distract myself,” Rhame says. Utilities closed down 1.2% while the S&P 500 lost 3.2% on a day of widespread losses. – Timothy W. Martin
Time for Active Managers to Shine
The return of volatility is a chance for active fund managers, which have been under pressure from passive, index-tracking funds, to prove their worth. “This is clearly an opportunity for active managers to show their stripes,” and select winning names, says Matthew Rubin, director of investment strategy at Neuberger Berman. He says investors’ biggest concern is currently China. Neuberger has been overweight small-cap equities over the last nine months because the firm believes those companies have greater exposure to the growing US economy and are poised to benefit from the strong M&A cycle. When it comes to fixed income, Rubin says some investors have stayed away from the energy sector and missed chances to benefit from “misunderstood” companies. “There’s been a lot of throwing the baby out with the bathwater in the energy sector,” he says. — Sarah Krouse
Other Markets Have Been Flashing Warning Signals
Tumbling commodity prices, emerging market weakness and widening fixed-income spreads are just a few of the signals that one bond strategist thought would have led to a stock selloff earlier this summer. “As a bond person I’ve been amazed that the equity market has held up as well as it has given the signals coming from other markets,” says Kathy Jones, a fixed-income strategist at Charles Schwab. Jones saw weaker-than-expected manufacturing data from China and the US today as causes of the end-of-week selloff. She adds that oil prices could fall further in the coming weeks, further weighing on investor sentiment. — Sarah Krouse
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