“October has brought a spooky uptick in market swings,” said Keith Lerner at Truist Advisory Services. “After an extended rally and elevated investor sentiment, markets were vulnerable to negative surprises. We would view deeper pullbacks as opportunities to lean in.”
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The White House signalled efforts to calm fears of a full-blown trade war that could have a seismic effect on the global economy. “I think we’re doing very well. I think we’re getting along with China,” Trump said. He also indicated that he believed his planned meeting with President Xi Jinping this month would go ahead.
US bank stocks, meanwhile, stabilised on Friday after several reported stronger profit for the latest quarter than analysts expected. That helped steady the group, a day after tumbling on worries about potentially bad loans. Scrutiny is rising on the quality of loans that banks and other lenders have broadly made following last month’s Chapter 11 bankruptcy protection filing of First Brands Group, a supplier of aftermarket auto parts.
One of the financial firms that could feel pain because of First Brands’ bankruptcy, Jefferies Financial Group, rose 5.9 per cent on Friday. It had come into the day with a loss of roughly 30 per cent since mid-September.
The question is whether the lenders’ problems are just a collection of one-offs or a signal of something larger threatening the industry. Uncertainty is high following a long stretch where many borrowers were able to stay in business, even with the weight of higher interest rates. And with prices soaring to records for all kinds of investments, the appetite for risk may have gotten too high.
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JPMorgan CEO Jamie Dimon addressed the issue on an earnings conference call with analysts last week, warning that “when you see one cockroach, there are probably more. […] Everyone should be forewarned on this one.”
“But banks make loan loss provisions and typically have plenty of capital to keep the cockroaches from causing structural damage,” said Brian Jacobsen, chief economist at Annex Wealth Management. “Based on earnings and data so far, it looks like this isn’t an infestation.”
In the bond market, Treasury yields steadied following their sharp slides from Thursday, which came as investors rushed into investments seen as safer. The yield on the 10-year Treasury edged up to 4 per cent from 3.99 per cent late on Thursday.
Gold also pulled back from its latest record as more calm seeped through the market.
The price for an ounce fell 2.1 per cent to $US4,213.30, but it’s still up roughly 60 per cent for the year so far. Besides worries about tariffs, gold’s price has also surged on expectations for coming cuts to interest rates by the Federal Reserve and concerns about the massive amounts of debt that the US and other governments worldwide are building.
In other international markets, indexes dropped across much of Europe and Asia on Friday. Germany’s DAX lost 1.8 per cent, and Hong Kong’s Hang Seng sank 2.5 per cent for two of the world’s bigger moves.
AP/Bloomberg
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