By Ian Salisbury
Buoyed by a strong start to corporate earnings season and better news out of Europe, U.S. stocks jumped this morning. But will the gains hold — and break the market’s worst slump so far this year?
Despite today’s surge, stocks have lost ground for five straight trading days and eight out of the last ten. Tuesday was the worst day for stocks this year, with the Dow plunging more than 200 points as investors fretted about the economies in Western Europe, a not-as-quick-as-expected recovery in the U.S. job market and a potentially weak earnings season underway. “People are saying wait a minute these problems aren’t solved,” says Judity A. Sarayan, manager of the $1.1 billion Eaton Vance Tax-Managed Global Dividend Income Fund.
Over the past five trading days, U.S. stocks have fallen nearly 5%, and lost a combined $775 billion in market value. The losing streak is the longest for the broader market since it posted seven consecutive down days in November. (Only baseball’s Minnesota Twins and Atlanta Braves seem to have had a worse start to April, with both teams winless through Monday). Overall, stocks are now at their lowest value since March 7.
Financial stocks, which were soaring only a few weeks ago, have led the market down. As a group, financial firms are down 5.5% during the market’s multiday slide. “U.S. banks are being bogged down by worries about the broader economy and the problems with Spanish banks, says Tim McCandless, senior equity analyst at Bel Air Investment Advisors. Experts say investors might get a better picture of how U.S. banks are really doing on Friday, when banking giants JPMorgan Chase and Wells Fargo both report their quarterly profits.
This slump comes just as many jittery investors were finally coming back into the market. From January through March, investors added nearly $6 billion more into exchange-traded funds specializing in large U.S. stocks than they withdrew, as stocks posted their best first quarter since 1998.
That said, some money managers aren’t that worried about the market’s multiday pullback. Herb Morgan, chief investment officer of Efficient Market Advisors, is not particularly bearish on stocks, but he says the market’s rally left many investor portfolios devoting too much cash to stocks. A portfolio that was 80% stocks, 20% bonds at the start of the year could have become as much as 88% stocks by the beginning of April. Morgan himself trimmed some stock positions starting last week. “The markets had gone up an awful lot in a short period of time,” he says.
What hasn’t slumped? The prices of U.S. government bonds. In mid-March, the 10-year Treasury had a yield of 2.37%, and some analysts were predicting the end of the 30-year bull market in bonds. Prices have soared ever since as investors have flocked to a so-called safe haven investment. On Tuesday, the yield on the 10-year Treasury, which moves in the opposite direction of its price, was 1.98%.
This story was written by Ian Salisbury and Russell Pearlman