The latest trading session found global markets trying to recover after a sharp retreat in technology stocks erased about $1 trillion from leading shares and rattled Wall Street.
World equities were broadly firmer on Wednesday, while U.S. stock futures pointed higher by 0.4 to 0.7 percent after two straight sessions of losses. Those declines had already wiped out the S&P 500’s gains for the year and left the Nasdaq close to slipping into negative territory.
The pressure came mainly from the technology sector, where investors cut exposure to FAANG names — Facebook, Apple, Amazon, Netflix and Google. Those stocks had been central to the long U.S. bull run, but the recent pullback showed how quickly sentiment had turned.
Apple and Amazon recovered some ground in pre-market trading, rising 1.0 to 1.5 percent. European shares also moved up 0.4 percent, with both tech and bank stocks gaining around 0.8 percent. The dollar, after rising 0.7 percent on Tuesday, eased 0.2 percent.
David Vickers, senior portfolio manager at Russell Investments, said the sell-off reflected how quickly momentum trades can unwind. “High-flying momentum stocks have come off in a fairly spectacular fashion. At one point Apple and Amazon accounted for 40 percent of U.S. equity gains and people were just recycling money into the winners,” Vickers said.
He added that the market had entered a more fragile phase. “That’s come off the boil and set the cat among the pigeons... We’ve seen a lot of reflexivity, when selling begets selling, the market starts to turn over, people take profits, it leads to another leg down and so on.”
Oil prices also helped steady the mood. Brent crude rose almost 2 percent after falling 6 percent, while MSCI’s Asia ex-Japan index ended flat and the broader all-country equity gauge tried to halt a two-day slide.
Investors were also weighing signs that global growth may be slowing. Markets have been watching the impact of Washington’s trade tariffs on China, as well as the fading boost from President Donald Trump’s tax cuts in the United States.
Vickers said U.S. earnings growth had been a key support for equities, but some investors were now worried that the pace would slow from more than 20 percent to single digits as stimulus effects faded. He also warned that the S&P 500 was expensive by historical standards, making it harder to justify further gains without stronger earnings.
Concerns over growth were reinforced by comments from U.S. Federal Reserve officials, who suggested that worries about the outlook could slow the pace of monetary tightening or even bring it to an end. That helped push U.S. 10-year Treasury yields to near two-month lows around 3.03 percent, down from 3.25 percent in early November, before they edged back to about 3.07 percent on Wednesday.
Jonas David, a strategist at UBS Global Wealth Management, said the late-month G20 meeting between Trump and Chinese President Xi Jinping could shape bond markets and the euro-dollar exchange rate. “If we don’t get a relaxation of trade tensions after the G20, markets may start questioning the prospect of another Fed rate hike in December,” he said.
The euro rose 0.3 percent after losing 0.75 percent on Tuesday, helped by reform promises from Italy’s prime minister and hopes of a compromise between Rome and the European Commission over the deficit in the draft 2019 Italian budget.
Italy’s two-year bond yield fell 17 basis points to 1.22 percent, while the 10-year yield dropped as much as nine basis points to 3.53 percent, putting it on course for its biggest daily fall in more than three weeks.
The European Commission had already rejected the draft plan, but UBS Wealth’s David said markets were justified in expecting a negotiated outcome. He said euro-zone growth and the Fed’s interest-rate outlook mattered more for the single currency than the budget row alone.
By the close of the session, traders were still balancing a tech-led correction, softer growth expectations and shifting central bank signals against a modest rebound in risk assets.
Reporting by Sujata Rao; additional reporting by Shinichi Saoshiro in Tokyo; Editing by David Stamp.
