Stocks Open Lower, But Still on Track for Weekly Gains
12 January 2019 - 2:03AM
Dow Jones News
By Riva Gold
U.S. stocks opened lower Friday but remained on track for solid
weekly gains thanks to fading concerns about the economy and
interest rate policy.
The S&P 500 edged down 0.4% Friday in the opening minutes of
trading after the index advanced for five straight sessions and
rose 2.6% through Thursday this week. The Dow Jones Industrial
Average and Nasdaq Composite were down 0.5% and 0.6% respectively.
Shares of Activision Blizzard fell 6%, following news it is cutting
ties with a videogame studio.
The Stoxx Europe 600 was flat Friday but was on course to end
the week 1.6% higher, while Japan's Nikkei and Hong Kong's Hang
Seng each gained Friday and climbed around 4.1% this week, their
biggest weekly gain since November.
Markets around the world have drawn support recently from
reassurance from the Federal Reserve will adjust its pace of
tightening monetary policy if needed, as well as hopes for progress
in U.S.-China trade relations, rising oil prices and signs the U.S.
economy remains healthy.
On Thursday, Federal Reserve Chairman Jerome Powell reiterated
the central bank's flexible outlook on raising rates at an
appearance in Washington, D.C., while Fed Vice Chairman Richard
Clarida separately said low inflation should allow the bank to be
patient with future interest-rate increases.
"You basically have a dovish fed and a still strong economy -- a
positive cocktail for markets," said Thomas Costerg, senior
economist at Pictet Wealth Management.
Investors now see a roughly 19% of one or more additional
interest rate rises by late June, compared with a 45% chance a
month ago, according to fed-fund futures tracked by CME Group.
That has pushed the dollar lower, helping support a rebound in
emerging markets and commodities, and assuaged investors' fears
about the global economy.
Jeroen Blokland, a portfolio manager at Dutch asset manager
Robeco, recently increased exposure to stocks in his portfolios on
the expectation that growth will continue.
He expects volatility to return, however. "Some kind of
turbulence, or phases of elevated volatility, will stay with us
because every time the economy hits a soft spot, there will be this
chatter about a potential recession coming," he said. "I don't
think we'll see the stability we've seen in 2017 and the first part
of 2018, but I do think it will become less volatile than
December."
Meanwhile, investors have become more hopeful about the trade
outlook in recent weeks. Following midlevel trade talks held in
Beijing this week, China and the U.S. are moving ahead with plans
for higher-level talks, with President Xi Jinping's economic-policy
chief scheduled to visit Washington in late January.
Uncertainty around the trade outlook led analysts in December to
rapidly downgrade their forecasts for corporate earnings.
Companies in the S&P 500 are forecast to grow their earnings
by 12% in the fourth quarter of 2018, down from a forecast of 18%
in July, according to FactSet.
"Earnings estimates were slashed in anticipation of trade war,"
said Mike Thompson, head of S&P Investment Advisory
Services.
Now, "It's easier to be optimistic at these [valuation] levels,
and there's more clarity [on the economic and policy outlook]" he
added, noting he expects U.S. earnings to exceed expectations by a
large margin as fourth-quarter results begin to pour in next
week.
The S&P 500 currently trades at 15 times forward earnings,
down from 18.6 a year ago.
Write to Riva Gold at riva.gold@wsj.com
(END) Dow Jones Newswires
January 11, 2019 09:48 ET (14:48 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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