martes, 18 de abril de 2017

martes, abril 18, 2017

Rising Anxiety Fuels Market About-Face

Many investors worry that markets are entering a treacherous period amid soft economic data and global conflicts

By Corrie Driebusch and Sam Goldfarb

The Chicago Board Options Exchange’s volatility index pit in March. The VIX is up 24% since April 7. Photo: Getty Images


Signs of a slowdown in the U.S. economy and rising anxiety in markets are prompting many investors to reassess their portfolios and prune risky positions.

On Friday, the consumer-price index, which measures what Americans pay for goods and services, declined. It was the first monthly decline for core prices, which exclude the often-volatile categories of food and energy, since January 2010. The data came a week after the Labor Department said U.S. employers added far fewer jobs in March than economists had expected.

The declines, which helped push the WSJ Dollar Index to its fourth retreat in five sessions, amplify the concern among many investors that markets are entering a treacherous period as lackluster economic fundamentals collide with unpredictable domestic and international politics.

The S&P 500 is down about 3% from its record hit in March, within the range many analysts have said they expect the stock market to end 2017. The CBOE Volatility Index, or VIX, climbed every trading day this past week, rising 24% since April 7 to its highest level since November. Bond yields have fallen to their lowest level since just after the November elections, reflecting the retreat of expectations that a White House policy onslaught would spearhead a rise in economic growth and inflation.

In recent weeks, Erik Knutzen, multiasset class chief investment officer at Neuberger Berman, said he reduced exposure to large-company stocks and instead put that money into European and emerging-market stocks in some of the portfolios he manages, citing more-favorable valuations overseas.

“We were concerned a lot of optimism and good news was already priced in, and we wanted to take some chips off the table,” he said. “We do expect an increase in volatility, but we’re not expecting a 20% drawdown in markets.”

Potential pitfalls for markets are numerous. President Donald Trump this past week reversed several positions that had defined his campaign. In an interview with The Wall Street Journal, he said he supported the Export-Import Bank and declined to label China as a currency manipulator. At a news conference Wednesday, he said the North Atlantic Treaty Organization is no longer “obsolete,” as he said repeatedly during the campaign.

On Thursday, after the Pentagon said the U.S. dropped one of its largest nonnuclear bombs on Afghanistan, U.S. stocks fell further.

The perception of policy volatility is among the reasons that some investors are increasing holdings of cash, at least for the near term.

“The realization is it’s going to be bumpy the next six, nine or 12 months,” said Mr. Knutzen.

Bond investors have scored gains amid the turmoil. Over the past four trading days, the yield on the benchmark 10-year Treasury note registered its largest one-week decline since last June, settling Thursday at 2.237%, its lowest close since Nov. 16. Yields fall when bond prices rise.




Over the past month, one development after another has led investors to rethink assumptions that had previously caused them to sell bonds.

Against this backdrop, one argument for higher yields that has remained intact has been a trend toward higher U.S. inflation. But that also suffered a setback Friday with the release of the CPI report.

While many bond investors had already started to scale back bets on inflation, the report confirmed suspicions “that inflation is not as big of an issue as we thought it was,” said George Rusnak, co-head of global fixed-income strategy at Wells Fargo Investment Institute.

One area where U.S. investors might shift money to protect their portfolios: Europe. Demand for European stocks has risen this year thanks to relatively low valuations, data pointing to an improving eurozone economy and polls suggesting far-right candidate Marine Le Pen’s odds of winning the French presidential elections have moderated.

Investors poured $1.8 billion into European equity funds in the week through Wednesday, according to data from EPFR Global, the biggest inflows for those funds in 68 weeks.

Meanwhile, investors put just $400 million into U.S. equity funds. The prior week, they had withdrawn $14.5 billion, the largest outflow for U.S. equities in 82 weeks.

The moves mark a reversal from the period between Election Day and year-end, when bets that the Trump administration’s agenda would supercharge economic growth in the U.S. led investors to pour $57.7 billion into U.S. equity funds while withdrawing $1.1 billion from their European counterparts, according to EPFR data.

While the VIX remains well below its 10-year average, its revival has marked a sharp move relative to the S&P 500 index, which fell about 1% since April 7. The VIX is based on options prices on the S&P 500 index and tends to rise when stocks fall.

Investors also drove up the price of April futures contracts on the VIX relative to contracts that expire in May, signaling heightened anxiety around the near term.

“There’s some nervousness in the marketplace that’s not reflected in the S&P 500 index,” John-Mark Piampiano, head of equity derivatives strategy at Seaport Global Securities, said.


—Gunjan Banerji and Akane Otani contributed to this article.

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