|
|
Ten of the 11 sectors comprising the Standard & Poor’s 500 index have lost value this year. Only energy has been spared.
The contagion spread more widely last Wednesday when Target and Walmart reported surprisingly poor first-quarter results.
Kohl’s also missed its profit target and is actively seeking a buyer.
With consumer spending supporting as much as 70 percent of the U.S. economy, weakness in retail sales is an alarm signaling widespread dangers across the economy.
Investors fled stocks, taking refuge in treasury securities and cash and in shares of utilities, health care companies, and other businesses expected to weather hard times.
The S&P’s consumer staples sector—companies that make toothpaste, toilet paper, and other essentials—lost 8.6 percent of its value in last week’s five trading days.
“Many investors say they have been struck by the length and sheer magnitude of the sell-off, which is in its fifth month,” The Wall Street Journal noted.
Some analysts say the correction is long overdue, with markets having been propped up by artificially low interest rates and cheap money, the WSJ said. Now that the tailspin has begun, it will be harder to stop, they warned.
“The sell-off is well into recessionary territory,” Deutsche Bank analysts wrote in a note last week, pointing out that the S&P is approaching the 24-percent decline it has averaged during recessions since 1946.
“Recession risk is definitely rising,” portfolio manager Zhiwei Ren at Penn Mutual Asset Management told the WSJ.
“You have a weakening economy and a hawkish Fed,” he added. “It’s not hard to be pessimistic about asset prices.”
In addition, bond prices are rising as stock prices fall.
That suggests investors are becoming less worried about inflation and more about economic growth, the WSJ said.
“The strong consensus is that growth goes down from here, there is a recession in the foreseeable future, interest rates will keep going up, and inflation will come down but remain high,” Emiel van den Heiligenberg at Legal & General Investment Management told the Financial Times.
“Markets are in a slow grind downward,” Gregory Perdon, co-chief investment officer at Arbuthnot Latham said to the FT.
“It’s a combination of fear” that the Fed will overcorrect and set off a recession, “and fear that this inflationary trend is going to eat into spending, which then leads to a reduction in companies’ earnings,” he said.
TREND FORECAST: The faster and higher the Federal Reserve raises interest rates, the higher unemployment will rise, and the deeper retail sales and real estate prices will fall… along with equity markets.
Also, the deeper economies fall, many commodity prices which zoomed up throughout the last year, have eased as manufacturing has slowed in China and Europe… and will continue their decline.
Indeed, copper has slid 13 percent since March. We have referred to copper as “Dr. Copper,” because the metal is considered to have a Ph.D. in economics since, because of its use throughout the manufacturing sector… it accurately signals changes in global economic trends..