YCLOAK

Shaken out of many months of calm, Wall Street braced for a higher level of volatility in the days ahead, after a roughly 2 percent rebound in U.S. stocks on Tuesday followed the biggest one-day selloff in more than six years.

The question that vexed traders: were the wild swings of the past two days the start of a deeper move down or just clearing the way to the resumption of the aging bull market, which would turn nine on March 9.

“Today’s market action is a classic of a market that has searched for a bottom,” said Peter Cardillo, chief market economist at First Standard Financial In New York, who predicted a rebound back to record levels.

Bulls argue that strong U.S. corporate earnings, including a boost from the Trump administration’s tax cuts, will ultimately support market valuations. 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.

“The markets went into being religiously over-bought to deeply over-sold in a matter of four trading days,” said Adam Sarhan, chief executive of 50 Park Investments, an investment advisory service. “New buyers are showing up, who were waiting for the prices to go down.”

Tuesday’s wild trading session saw the Dow swing more than 1,100 points from its low to its high and ended with the benchmark S&P 500 tallying its best day since just before President Donald Trump’s November 2016 election.

“I don’t think the volatility is over,” said JJ Kinahan, chief market strategist at TD Ameritrade in Chicago. “These types of moves tend to take about three weeks to get through the system … and volatility just doesn’t suddenly settle down.”

Investors were eyeing the recent steep slide as an opportunity, an extreme example of the “buying the dip” that has symbolized the market’s steady climb to record highs.

“We’ve been looking at this as an opportunity to incrementally add a little bit of risk – not get over our skis, but a little bit,” said Erin Browne, head of asset allocation at UBS Asset Management in New York.

During the trading day, stocks swung from negative to positive after indexes started the session 2 percent lower. The S&P 500 ended 6.2 percent below its Jan. 26 peak.

The sharp declines in recent days marked a pullback that had been long awaited by investors after the market minted record high after record high in a relatively calm ascent.

The Dow Jones Industrial Average rose 567.02 points, or 2.33 percent, to 24,912.77, the S&P 500 gained 46.2 points, or 1.74 percent, to 2,695.14 and the Nasdaq Composite added 148.36 points, or 2.13 percent, to 7,115.88.

After the end of regular trading on Tuesday, S&P 500 e-mini futures were down 0.4 percent.

Technology, materials and consumer discretionary were the top-performing sectors on Tuesday. Defensive sectors utilities and real estate were the only major S&P groups to end negative.

Apple climbed 4.2 percent, while Microsoft and Amazon gained 3.8 percent each.

The U.S. stock market has climbed to record peaks since Trump’s election on the prospect of tax cuts and corporate deregulation as well as optimism over corporate earnings.

The S&P 500 remains up 26 percent since his election, and on Tuesday clawed back into positive territory for 2018, up 0.8 percent.

“We had gone very far, very fast,” Matthew Cheslock, a trader at Virtu Financial, said from the floor of the New York Stock Exchange. “But I don’t think anyone expected the velocity or the ferocity that we saw on the downside.”

The market’s pullback came amid concerns about rising bond yields and higher inflation. These were reinforced by Friday’s January U.S. jobs report that prompted worries the Federal Reserve will raise benchmark interest rates at a faster pace than expected this year.

Traders had speculated that Monday’s selling was spurred by automated programs, and had called Monday’s session busy but orderly.

Market experts also attributed the selloff, including the overnight slide in S&P 500 futures, to the violent unwind of a trade betting on volatility in U.S. stocks staying low as the CBOE Volatility index, known as the VIX, notched its biggest one-day jump on Monday in over two years.

U.S. Securities and Exchange Commission Chairman Jay Clayton said he “can’t really say” what caused the dramatic drop in stock prices during recent trading sessions, but that all signs indicate financial markets are functioning normally.

U.S. Treasury Secretary Steven Mnuchin said recent volatility was not enough to rock market fundamentals.

Tuesday’s rebound came a day after a steep selloff that brought the biggest percentage daily declines for the S&P 500 and the Dow since August 2011 and a near 1,600 point intraday loss for the Dow.

Trading volume of more than 12.3 billion shares marked the busiest trading day since just after the November 2016 election, and topped Monday’s volume of 11.7 billion.
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Will Disney’s upcoming streaming services be the mouse that roared … or squeaked?

Disney already owns enviable entertainment properties including Pixar, Marvel and Star Wars. Now, it’s looking to add Fox’s TV and movie studios as it prepares to launch two streaming services, one for sports and another focused on entertainment.

In announcing first-quarter earnings Tuesday, CEO Bob Iger said he was “excited about what lies ahead” including the sports streaming service and the pending deal for Fox. Adjusted income of $1.89 per share beat analyst expectations, as did revenue of $15.35 billion, a 4 percent increase.

But the same financial report hints at trouble with the lucrative ESPN cable channel. Revenue in the cable networks business fell 1 percent to $4.5 billion, hurt by an ESPN revenue decline. The ESPN decline resulted from lower ad revenue, though that was partly offset by growth in fees from cable distributors and lower programming costs.

Disney announced a $5-a-month price for the ESPN Plus streaming service, which is coming this spring.

The services represent Disney’s big bet on what the next generation of entertainment will look like: more streaming and more choices. A streaming business is critical for Disney because the ESPN channel has been losing subscribers as more people ditch cable and satellite TV services and stream video on Netflix, Amazon and Hulu instead.

While Disney is trying to brace for the future with the streaming services, questions remain about whether they will offer enough to take on well-established services such as Netflix.

Rich Greenfield of BTIG Research said the ESPN streaming service seems more like a niche offering because it won’t have any content from the ESPN channel.

Stuck in the past?

And while the Disney-branded entertainment service could be a hit, with classic and upcoming movies from the studio, shows from Disney Channel, and the Star Wars, Marvel and Pixar movies, that service isn’t launching until late 2019.

“Our fear is that they’re just not all in on streaming,” Greenfield said. “If they want to be successful, they have to bring all their content to streaming.”

Instead, he said, Disney is dipping its toes in streaming while trying to preserve its traditional business models.

To boost revenue from theatrical screenings, studios such as Disney typically wait months to sell or rent movies on DVDs and a year to make them available through subscription services such as HBO. But such a timeline is quickly becoming a relic of the past. People now expect things immediately, like being able to watch a Disney movie on an Xbox right after it is released in the theater.

“That’s very hard to balance and be successful,” Greenfield said.

The Fox factor

The Fox content could help give viewers more reason to subscribe to yet another streaming service. Disney has offered $52.4 billion to buy the bulk of 21st Century Fox in a deal expected to close in the next 12 to 18 months. When that happens, Disney will own the Fox movie and television studios, cable TV networks such as FX and National Geographic, and 22 regional sports networks.

But many of the movies and shows from those businesses are already licensed out in the short term; for example, HBO gets Fox movies until 2022.

RBC Capital Markets analyst Steven Cahall is more positive about the prospects. Notably, Disney gets Fox’s share in Hulu, giving it a controlling stake. Cahall said the Fox video will help both Hulu and the upcoming Disney-branded streaming service.

“Disney is likely to be a global player in streaming in the coming years given the breadth and depth of its content,” he said.

In a call with investors, CEO Iger offered some details on what Disney’s streaming service might look like once it launches in late 2019.

He said Disney will “have an opportunity to spend more” on original programs for the service, but won’t have to be as aggressive as Netflix because Disney already has popular brands like Marvel and Pixar. He said the company is developing original shows around Star Wars, High School Musical and Pixar’s Monsters Inc.
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Asia’s benchmark stock indexes collapsed Tuesday, as Monday’s massive selloffs on Wall Street rolled across the globe. 

Japan’s Nikkei 225 index lost as much seven percent of its value at one point during the trading session, before closing at 21,610 points, a loss of nearly five percent. Hong Kong’s Hang Seng index followed suit, dropping just over five percent in its worst trading day since August 2015. 

The benchmark indexes Australia and South Korea also suffered serious losses.

In early Europe trading London’s FTSE 100 was down 3.5 percent at 7,081 points.

Asian markets were caught in the ripple effect of Monday’s 1,175-point loss on the Dow Jones Industrial Average, marking the biggest point decline in history. The S&P (Standard and Poor’s) 500 also had a bad day, losing just over four percent to finish at 2,648 points. 

The stock market has now lost about a trillion dollars in value since Friday, when the Dow lost 666 points. That drop followed a solid jobs report that showed the U.S. economy adding 200 thousand jobs and wages rising at the fastest pace in a decade. The tighter labor market and rising wages prompted investor fears of higher inflation and the possibility that the U.S. Federal Reserve would raise interest rates faster and higher than they have in recent years. 

Analysts who spoke with VOA had been expecting a stock market “correction” (a decline of about 10% from recent highs) as a result of the record run up in stock prices this year.
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As U.S. stocks plunged on Monday, President Donald Trump was speaking at an event in Ohio but noticeably not taking credit for the market despite doing so repeatedly when stocks were rising.

The stark contrast was a sign that Trump may be absorbing a tough message, underscored by former White House advisers, that American presidents traditionally have avoided commenting directly on Wall Street’s fickle trends.

Gene Sperling, a top economic adviser to Democratic former presidents Bill Clinton and Barack Obama, said Trump erred in recent months by focusing so heavily on the stock market.

“Even though the stock market tripled under Bill Clinton, his view was that you should always focus your policies and your public messages on bread-and-butter kitchen table issues … and that focusing on the stock market would take your eye off the real economy,” Sperling said.

White House spokesman Raj Shah, in an adjustment to the administration’s message on stocks, told reporters aboard Air Force One en route to Trump’s speaking event in Ohio, “Look, markets do fluctuate in the short term. We all know that … But the fundamentals of this economy are very strong and they’re headed in the right direction.”

Throughout a speech at a factory in Blue Ash, Ohio, Trump made no mention of stock markets. That departed sharply from past practice.

In his State of the Union address last week, Trump said, “The stock market has smashed one record after another, gaining $8 trillion and more in value in just this short period of time.”

‘Tremendous Benefits’

On Jan. 7, he wrote on Twitter, “The Stock Market has been creating tremendous benefits for our country in the form of not only Record Setting Stock Prices, but present and future Jobs, Jobs, Jobs. Seven TRILLION dollars of value created since our big election win!”

Three days before that, he tweeted, “Dow just crashes through 25,000. Congrats! Big cuts in unnecessary regulations continuing.” He had sent similar tweets for months.

The Republican president told Reuters in a Jan. 17 interview he has been getting kudos from people grateful for increased 401(k) retirement plan values and he believed the rise would not have happened if his Democratic opponent Hillary Clinton had won the 2016 presidential election.

“If the Democrats won the election, the stock market would have gone down 50 percent from where it was, and now look at the percentage increase. It’s a record increase,” Trump said.

Once the markets closed, the White House issued a statement saying Trump’s focus is “on our long-term economic fundamentals, which remain exceptionally strong, with strengthening U.S. economic growth, historically low unemployment, and increasing wages for American workers.”

“The president’s tax cuts and regulatory reforms will further enhance the U.S. economy and continue to increase prosperity for the American people,” White House spokeswoman Sarah Sanders said.

The benchmark Dow Jones industrial average soared 42 percent between Election Day 2016, when Trump won the presidency, and its historic peak a week ago above 26,400.

On Monday, the Dow fell to below 24,000 but regained some of its midday losses to close at 24,345. In the past five trading days, the index has erased all its gains since late November.

The benchmark S&P 500 has pulled back more than 6 percent from a Jan. 26 record high.

The “Trump rally,” as some traders have dubbed it, has coincided with a sweeping tax code overhaul approved in December, which slashed corporate taxes, and a deregulation push.

The S&P 500 rose 34 percent from Trump’s election to its recent high.

But stocks have been climbing since March 2009, when Obama inherited a serious financial crisis and the worst economic recession since the Great Depression of the 1930s. At that time, the Dow was trading at around 6,500.

Trump has also criticized his predecessor Obama’s effect on markets. In November 2012, Trump tweeted, “The stock market and U.S. dollar are both plunging today. Welcome to @BarackObama’s second term.”

The S&P 500 rose 126 percent from Obama’s 2008 election to his final day in office in 2017.

Former Obama press secretary Jay Carney on Monday tweeted, “Good time to recall that in the previous administration, we NEVER boasted about the stock market — even though the Dow more than doubled on Obama’s watch — because we knew two things: 1) the stock market is not the economy; and 2) if you claim the rise, you own the fall.”

Doug Holtz-Eakin, president of the American Action Forum and a former economic adviser to 2008 Republican presidential nominee John McCain, said, “The president shouldn’t comment about the stock market. Indeed if anyone is going to make major pronouncements about economic data, it should be the Treasury secretary or the agency releasing the data, so if they get it wrong you can get rid of them. You don’t want the president owning those things.”
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Federal officials will take another look at the historic Alaska community of Nome as a possible port serving ships heading for the Arctic.

The U.S. Army Corps of Engineers announced it has signed an agreement with the city of Nome to examine whether benefits justify costs of navigation improvements, said Bruce Sexauer, chief of civil works for the Corps’ Alaska District.

“The study will look at economic and social reasons to see if expanding the port is in the federal interest,” he said.

The study process generally takes three years and could culminate in a Corps’ recommendation to Congress to authorize port improvements, Sexauer said.

Alaska lacks deep-water ports along most of its west and northwest coast. The nearest permanent U.S. Coast Guard station is Kodiak more than 800 miles (1,287 kilometers) away.

Arctic marine traffic continues to grow and Nome, though south of the Arctic Circle, is well situated south of the Pacific chokepoint to the Arctic, the Bering Strait, Sexauer said.

A joint federal-state study started in 2008 looked at alternatives for Arctic ports in the Bering and Chukchi seas. Nome became the top choice because of infrastructure already in place, including an airport that handles jets, a hospital and fuel supply facilities.

“It just needed to be bigger and deeper,” Sexauer said

However, economic justification for the port diminished in late 2015 when Royal Dutch Shell PLC drilled a dry hole in the Chukchi Sea and suspended its U.S. Arctic offshore drilling program.

“The benefits for a project at Nome went away, at least the oil and gas benefits,” Sexauer said. The Corps paused its study with the state and officially terminated it last month, Sexauer said.

The study with the city will again look at how a Nome port would aid marine traffic for petroleum development, mining and regional delivery of fuel and other products.

Federal law changed in 2016 to allow the Corps to also consider social benefits, such as support of search and rescue operations, national security and aid to communities to help them be sustainable.

The Port of Nome remains too shallow to handle large ships. Fuel tankers stay anchored in deep water and fuel is lightered to Nome.

Nome’s inner harbor in 2014 was just 10 feet (3 meters) deep and its outer harbor was less than 23 feet (7 meters) deep. The Corps that year looked at constructing docks up to 1,000 feet (305 meters) long and dredging to 35 feet (10.7 meters).

The Corps in late April has scheduled a planning meeting in Nome to detail the scope of the new study.
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European Central Bank head Mario Draghi said Monday that it’s too soon to declare victory over weak inflation – indicating it would be premature to set a definite end date for the bank’s money-printing stimulus despite a strengthening economy.

Draghi’s statement to a session of the European Parliament in Strasbourg, France, said that continuing economic growth means inflation would eventually tick up toward the bank’s goal of just under 2 percent, from an annual 1.3 percent in January. 

“While our confidence that inflation will converge towards our aim of below, but close to, 2 percent has strengthened,” Draghi said, “we cannot yet declare victory on this front.”

He said that “new headwinds” had arisen from a recently stronger euro. The stronger currency can hurt exporters _ and therefore growth _ and makes it harder to raise inflation, since it reduces the costs of imports. The euro was little changed after Draghi spoke, trading around $1.242, down 0.3 percent on the day. 

Draghi offered no indication of any looming change in the bank’s statement that it would continue purchasing 30 billion euros ($37 billion) per month in bonds at least through September, and longer if necessary. The purchases pump newly created money into the economy, driving down longer-term interest rates in an effort to raise inflation and growth.

The ECB head said that “overall, while we can be more confident about the path of inflation, patience and persistence with regard to monetary policy is still warranted for underlying inflation pressures to build up and inflation to converge durably towards our objective.”

An end to the purchases would eventually mean higher long-term borrowing costs for governments and companies. The ECB’s stance is being closely watched in currency markets, which tend to send the euro higher against the dollar on any indication that the stimulus might come to an end. Monetary stimulus tends to lower a currency’s exchange rate, while interest rate increases tend to raise the exchange rate against other currencies. 

The ECB has made clear that interest rate increases will only occur well after the end of the purchases. That means the next rate increase likely won’t happen until sometime in 2019. Currently, the bank’s main benchmark interest rate is at a record low of zero.
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Nigeria’s President Muhammadu Buhari on Monday signed an executive order aimed at boosting the local production of goods and create jobs in the west African country.

Buhari, a 75-year-old former military ruler, has frequently spoken about ending the OPEC member’s dependence on oil exports while also creating jobs by boosting local food production.

And in 2015, months after Buhari came to power in May of that year, the central bank restricted access to foreign currency to import certain goods in a bid to stimulate local manufacturing.

The president “ordered that all ‘procuring authorities shall give preference to Nigerian companies and firms in the award of contracts, in line with the Public Procurement Act 2007,'” said the presidency in a statement circulated on Monday.

“The executive order also prohibits the ministry of interior from giving visas to foreign workers whose skills are readily available in Nigeria,” added the statement.

Around four out of every 10 people in the country’s workforce were unemployed or underemployed by the end of September, according to data released by the statistics office in December.

The order states that consideration will only be given to a foreign professional, “where it is certified by the appropriate authority that such expertise is not available in Nigeria.”

The country, which has Africa’s largest population and biggest economy, in 2016 fell into its a recession largely caused by low oil prices and militant attacks on energy facilities in the Niger Delta region.

It emerged from recession in the second quarter of 2017, largely on higher on oil prices.
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Economists at the European Central Bank say that the U.S. corporate tax cut should lift the world’s largest economy in the short term but warn it could erode the tax base in European countries by intensifying global competition for lower rates.

In a short article released Monday, the ECB’s economists say that the cut in business taxes will provide a “significant fiscal stimulus” to growth in the U.S. in the short term. It warned that long-term effects were less clear, especially if the cut leads to larger U.S. budget deficits.

Effects on the 19-country eurozone were “highly uncertain and complex” but could include an erosion of the tax base if countries around the world compete by lowering their tax rates to attract businesses.

“Lower U.S. corporate tax rates raise the tax attractiveness of the United States relative to other countries,” the report said. “Prior to the reform, the U.S. corporate tax rate stood above the rates of all large euro area countries, while, after the reform, it is close to the lower end of rates in those countries.”

The legislation, which was pushed by President Donald Trump and signed into law in December, lowers the corporate tax rate from 35 to 21 percent, among other changes. The changes took effect January 1.

Meanwhile, the U.N.’s trade and development agency said that as multinational companies return an estimated $2 trillion to the United States because of the tax law, there could be “sharp reductions” in foreign direct investment worldwide.

The U.N. Conference on Trade and Development noted in their own preliminary report that the tax law includes a one-time tax on accumulated foreign earnings that could free up funds overseas to be repatriated.

UNCTAD Secretary-General Mukhisa Kituyi said the impact on investment in the developing world remains unclear.

The agency says nearly half of all global investment is in the United States or owned by U.S. multinationals, which have kept about $3.2 trillion in earnings overseas.

Agency officials said the main impact could come over the longer-term, as multinationals reassess their foreign investment portfolios and the effects of the tax reform play out.

UNCTAD says much will depend on how big multinationals respond. It said five technology companies — Apple, Microsoft, Cisco, Alphabet and Oracle — together hold over $530 billion in cash overseas, or about one-fourth of the total “liquid assets” believed to be available for repatriation.
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Recent losses on global financial markets, including those in the U.S., have some investors concerned about expectations for their holdings and plans for the future.

The Dow Jones Industrial Average declined 2.5 percent Friday, its largest percentage drop since Britain’s decision in June 2016 to leave the European Union.

The Dow and the broader U.S. Standard & Poor’s 500 Index ended the week roughly 4-percent lower, their biggest weekly drops since early 2016, amid fears of inflation and disappointing quarterly corporate earnings results.

Key stock indexes in Europe also fell Friday. Germany’s DAX index dropped 1.7-percent, while France’s CAC 40 Index declined 1.6-percent.

In Asia, Japan’s Nikkei 225 Index slid nearly 1-percent and South Korea’s Kospi fell 1.7-percent.

Meanwhile, U.S. bond yields climbed and contributed to the sell-off after the U.S. government reported that wages grew last month at their fastest pace in eight years.

The wage data helped stoke investor concern that the Federal Reserve, the U.S. central bank, will respond to higher inflation by hiking its key interest rate more quickly than anticipated.

Darrell Cronk, head of the Wells Fargo Investment Institute, said an extended period of low interest rates has helped create the uncertainty.

“We’ve enjoyed low interest rates for so long, we’re having to deal with a little bit higher rates now, so the market is trying to figure out what that could mean for inflation.”

The yield on the benchmark 10-year U.S. Treasury notes rose to 2.852-percent, its highest level in more than four years. The rise in bond yields hinders stock performance in two ways: it makes corporate borrowing more expensive and it makes bonds more attractive to investors compared to riskier stocks.

Bond strategists were unwilling Friday to predict what lies ahead for interest rates this week after the markets’ unusual volatility in the past week.

Investors may get a hint of the direction of interest rates when trading resumes in Asia early Monday, and possibly more insight after the U.S. Treasury’s $66 billion in auctions of 3-, 10- and 30-year bonds from Tuesday to Thursday.
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