Stocks' slide tops worst week in 2 years

Stocks' slide tops worst week in 2 years

Stocks' slide tops worst week in 2 years

Bears, including short sellers that bet on the market decline, say that the market is over-stretched in the context of rising bond yields as central banks withdraw their easy money policies of recent years.

Utilities .SPLRCU , a bellwether of bond proxies, and its defensive peer the real-estate sector .SPLRCR , have fallen almost 11 percent and 8 percent, respectively, since early September - against a near 8 percent growth in the broader market .SPX .

Many investors have been bracing for a pullback for months, as the stock market has minted record high after record high with investors encouraged by solid economic data and corporate earnings prospects, the latter bolstered by recently passed USA corporate tax cuts.

JPMorgan in mid-January raised its forecast of 10-year U.

We think structural global sources of demand for yield, including de-risking pensions, will effectively cap the rise in bond yields and we would be surprised to see the USA 10 year Treasury rise much beyond 3% by the end of 2018.

The Dow has swung more than 2,100 points in the last two sessions, a decline pushing more than 8 percent and shattering long-term momentum.

Jim O'Neill, Former Commerce Secretary in the United Kingdom government, on Monday said the U.S. is growing and the central bank may need to tighten monetary policy faster than the market has perceived. "Even at 2.85 percent, the 10-year's yield is simply back to where it was four years ago".

Friday's January jobs report sparked worries over inflation and a surge in bond yields, as well as concerns that the Federal Reserve will raise rates at a faster pace than expected.

"The cause of this correction is the ostensibly withdrawal of liquidity by central bankers, and consequently rising interest rates".

It wasn't like this in past episodes of equity-market selloffs. That does not mean markets will not keep dropping, as they are wont to do.

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In oil markets, Brent LCOc1 fell 0.86 percent to $68.09 a barrel and US crude CLc1 dropped 0.76 percent to $65.07.

Of late Brent crude prices have been rising and brokerages like Goldman Sachs project the prices to top $80 a barrel in six months.

Rising rates have myriad consequences, including making it more expensive for companies and individuals to borrow money, like for buying a home or a vehicle.

There are speculations that the US Fed may turn hawkish, if inflation hits the target of 2 per cent growth. But the relationship between breakeven inflation and the oil price has shifted over the past 14 months, as we see in the chart below.

The rise in stock prices during the last decade was fueled, in part, by some of the lowest global interest rates since World War II. The Federal Reserve combats inflation by raising its interest rates.

Rising bond yields do not always lead to poor equity performance.

Investors in utility and real estate stocks - and indeed all dividend-paying equity sectors - should, however, recognize the threat that further increases in bond yields would present to future portfolio returns.

Seoul lost 1.3%, Singapore dropped 1.2% and Taipei shed 1.6 2%, with Manila, Jakarta and Wellington also suffering in the heaviest blood-letting in the region this year.

US stocks saw their biggest one-day fall in six years on Monday, as investor profit taking brought the market back down from record highs seen in late January, after benchmark bond yields rose to a four year high last week.

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