BARGAIN hunters beware. Wall Street’s two per cent weekly fall may not be the buying opportunity for stocks that it might seem.
The stock market begins the last week of June still rattled by the US Federal Reserve’s plans for reducing its stimulus efforts, called quantitative easing, or QE.
This week could bring more big intraday swings and volatility as asset managers reevaluate their portfolios to adjust to the new regime of diminishing support from the Fed.
The CBOE Volatility Index, Wall Street’s fear gauge, rose 10.2 per cent last week, ending Friday at 19. The index has risen in four of the past five weeks since Fed chairman Ben Bernanke first broached the phasing out of stimulus.
With the Fed putting the market on notice that it will be weaned from easy money, investors are going to look at the broad picture, which has plenty of warning signs. Economic growth remains spotty, Chinese credit markets are showing stress and interest rates are rising.
One reason for equity investors to worry is the second-quarter earnings outlook. Earnings warnings from companies for the second quarter outnumber positive outlooks 6.5 to 1, the most negative ratio since the first quarter of 2001, according to Thomson Reuters data.
Among the sectors with the worst outlooks for the second quarter, consumer discretionaries top the list, with 21 warnings and just two positive outlooks. Technology was another, with 27 warnings and six positive outlooks, Thomson Reuters data showed.