Volatility flared on global financial markets, as U.S. stocks attempted a rebound that prevented global equities from entering a bear market. Crude oil maintained its march lower, while Treasuries held onto gains with gold amid demand for haven assets.
The Standard & Poor's 500 Index ended Tuesday down 0.1% after rallying as much as 0.8% in afternoon trading on speculation Deutsche Bank AG is considering buying back several billion euros of debt. The bank's U.S.-listed shares pared a drop of almost 5% after the Financial Times reported on the possible bond repurchase. U.S. oil slipped below $28 a barrel, while 10-year Treasury notes climbed a fourth day after yields on similar maturity Japanese bonds fell below zero. The yen and euro jumped.
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The fresh rout in crude and the perceived creditworthiness of European banks fueled uncertainty Tuesday over the strength of the world economy, supporting a flight from risk assets around the globe. Energy shares fell, as oil slumped, with Brent crude tumbling the most in five months amid surging price volatility. The yen reached its strongest level in more than a year as the dollar tumbled to its lowest point since November. An MSCI Inc. gauge of global shares has lost more than 19% from a record high reached in May.
“It's quite a tussle between the bulls and bears,” said John Carey, a Boston-based fund manager at Pioneer Investment Management Inc., which oversees about $230 billion. “Some people think this is a temporary setback and that the market maybe got a little ahead of itself -- that nothing is really wrong with the economy and this is a good buying opportunity. Others think the market is indicating a slowdown in months ahead.”
Global equities and credit markets have been battered in volatile trading with concerns piling up, from China's slowing growth to oil to credit markets and corporate earnings. Deutsche Bank's unusual reassurance that it has enough money to meet obligations on certain bonds added to worry that crude's rout is weakening balance sheets, while losses in American equities spread to last year's winners, threatening one of the last pillars of the bull market.
As financial markets lurched, signals that central-bank officials are prepared to add to stimulus if needed did little to calm investor anxiety a day before Federal Reserve Chair Janet Yellen testifies before Congress. A Bank of America Merrill Lynch gauge tracking price swings across asset classes surged to its highest level in four years and the cost of protecting against company defaults worldwide jumped.
(More: Some big diversified stock funds in full bear mode)
STOCKS
The S&P fell 0.1% to 1,852.21 as of 4 p.m. in New York. The index earlier dropped to the lowest level since April 2014.
The Nasdaq Composite Index slipped 0.4%, with declines this week heaviest in shares with the highest price-earnings ratios and among momentum stocks, causing the engine of the bull market to sputter as it nears its seventh anniversary.
“It's the momentum people and it's the passive people getting the last hurrah here. The FANG stocks were outperforming at the end of 2015 and now that they're down year to date, momentum investors keep trying to bounce them back,” Brian Frank, portfolio manager at Frank Capital Partners LLC, said by phone. “It's the same story as August with low liquidity, high frequency traders pulling in and out of the market, and momentum investors trying to outguess each other. ”
