Global stocks descend into bear market as banks join oil in rout – FINANCIAL
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Global stocks descend into bear market as banks join oil in rout

A trader works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Thursday, Feb. 11, 2016.

The yearlong decline in global equities that began with a selloff in energy became a full-blown bear market Thursday as a rout in bank shares extended losses within the broadest worldwide gauge past 20 per cent.

The MSCI All-Country World Index slipped 1.3 per cent, pushing its decline since May to 20 percent and marking the largest retreat from risk since Europe’s sovereign debt crisis this year. Every industry has fallen since last year’s record high with decreases exceeding 25 % in financial stocks and 30 per cent in energy and commodities.

Selling from Tokyo to Frankfurt and Ny is torpedoing one of the greatest expansions in share prices of the 20th century, particularly in the U.S. in which the Nasdaq Composite Index has fallen 18 percent since July and the Standard & Poor’s 500 Index is about 125 points from the own bear market. Investors are running for cover amid concern the rout in oil prices will destabilize credit markets and saddle banks with losses.

“It’s very concerning,” Paul Karos, the equity head at US$3.85 billion Whitebox Advisors, said by phone. “It all began in the industrial economy and today the large thing has been earnings estimates that individuals thought in 2016 would have a nice recovery. As we enter into earnings this season we have seen that corporate profit is in question and we do not have that same degree of confidence.”

Only once in seven years have global stocks teetered as precariously as they are now. The MSCI gauge fell more than 24 percent between May and October of 2011 as Europe sovereign crisis raged and S&P stripped the U.S. of their AAA credit rating. The latest decline trims an advance that from March 2009 to its height last May added about US$47 trillion to equity values globally.

Equities markets have been buffeted by everything from China’s slowdown towards the selloff in oil and rising U.S. interest rates, sending them to the worst begin to annually on record. The rout in the oil market is rippling through markets amid growing signs that credit quality is worsening. U.S. bonds are now indicating the slowest inflation since May 2009 as investors pile into haven assets.

In a departure from past bouts of global weakness, global markets this season are getting little the aid of the U.S. The earth’s biggest economy was sluggish enough to help keep Janet Yellen’s Fed from hiking rates until December, and today corporate salary is eroding. The spread between an index tracking global stocks away from U.S. and the MSCI All-Country index is now the smallest since Aug 2015.

U.S. stocks extended their slide Thursday because the Dow Jones Industrial Average plunged more than 250 points as shares of monetary and raw-material companies lost a minimum of 2.2 percent. Comments by Fed chair Yellen that market turbulence could weigh on the outlook for the economy didn’t assuage investors because the S&P 500 plunged as much as 2.3 percent during Yellen’s testimony to Congress.


In New York, the Dow Jones industrial average fell 254.56 points or 1.6 per cent to fifteen,660.18, while the broader S&P 500 declined 22.78 points to 1,829.08 and also the Nasdaq edged 16.75 points lower to 4,266.84.

The S&P/TSX composite index closed down 98.28 points at 12,087.44. It was the fifth straight day of losses for the resource-heavy market, which felt downward pressure from almost all sectors, especially banks and base metal stocks.


The loonie gained 0.06 of the U.S. cent to 71.83 cents US even while the March agreement for benchmark North American oil lost $1.24 to settle at US$26.21 a barrel.

April gold rose $53.20 to US$1,247.80 a troy ounce as investors sought a secure haven from lower equity and oil prices.
Elsewhere in commodities, March copper was down two cents at US$2 one pound and the March contract for gas dipped five cents to US$1.99 per mmBtu.

With the U.S. fourth-quarter earnings season a lot more than halfway done, just 52 per cent of companies in the S&P 500 reported profit development in the fourth quarter. While energy companies and materials shares have led the decline, all but three sectors reported shrinking profits. Analysts estimate earnings at companies in the gauge fell 4.5 percent in the fourth quarter, and can drop another 6.3 per cent in the present period.

Still, equity gauges within the U.S. have organized in contrast to other developed markets. The S&P 500 has lost 11 percent in 2016, in contrast to declines of at least 18 percent in German stocks and the Euro Stoxx 50 Index. In Asia, the Shanghai Composite Index is down 22 per cent on the year and Hong Kong’s Hang Seng index has erased 15 per cent.

That’s not to say the rest of the world does better. Prospects to make money growth are dwindling, based on monthly data from Citigroup Inc.’s Earnings Revision Index, which tracks alterations in analyst estimates for corporate profits. Cuts to people estimates outweighed upgrades by the most since 2009 last month. The gauge shows analysts have expected more cuts than upgrades since August 2014.

While energy and materials shares have led equities downward with declines with a minimum of 31 percent, pain continues to be felt everywhere. All 10 primary groups within the MSCI All-Country index have declined because the index touched a higher in May 2015, with financial companies, consumer discretionary and tech shares adding onto losses in 2016.

“Energy led the whole entire market lower and with those companies going chapter 11 or trading at 50 cents on the dollar, now it’s looking at what’s next and the macro environment doesn’t seem great,” Brian Frank, portfolio manager at Frank Capital Partners LLC, said by phone. “There’s a flight to safety.”

– With assistance from Dani Burger.

Bloomberg News

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