Friday’s “emerging markets panic” was not as bad as that experienced last Friday, although the stock market had a rotten day.
The stock market reacted to the intensified selloff of emerging market assets on Friday. After Wednesday’s announcement that the Federal Reserve will cut another $10 billion from its monthly bond-buying program, Thursday’s trading session brought significant outflows from emerging market stocks, funds and ETFs. After that news was disclosed, by Friday morning’s opening bell, investors had no appetite for risk. Because emerging markets have benefited from the Federal Reserve’s quantitative easing program, there was widespread unease about the consequences for those economies as Fed’s liquidity pump is slowed to $65 billion per month in bond-buying, compared with $85 billion per month during 2013.
The Dow Jones Industrial Average (DIA) lost 149 points to finish Friday’s trading session at 15,698 for a 0.94 percent decline. The S&P 500 (SPY) dropped 0.65 percent to close at 1,782
The Nasdaq 100 (QQQ) declined 0.30 percent, while remaining above its 50-day moving average, to finish at 3,521. The Russell 2000 (IWM) fell 0.74 percent to end the day at 1,124.
In other major markets, oil (USO) declined 0.43 percent to close at $34.80.
On London’s ICE Futures Europe Exchange, March futures for Brent crude oil declined $1.51 (1.41 percent) to $105.79/bbl. (BNO).
April gold futures advanced $3.10 (0.25 percent) to $1,245.60 per ounce (GLD).
The transportation sector needed a little air in its tires on Friday, as the Dow Jones Transportation Average declined 0.18 percent to 7,289, remaining above its 50-day moving average of 7,274 (IYT).
In Japan, the exchange rate for the yen continued to be the dominant factor in stock market activity. Japanese stocks sank as the yen strengthened to 102.75 per dollar during the last hour of Friday’s trading session in Tokyo. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (FXY). The Nikkei 225 Stock Average fell 0.62 percent to 14,914 (EWJ).
In China, the stock markets were closed for the Lunar New Year. On Thursday, stocks declined after Markit Economics released the final reading on the HSBC China Manufacturing PMI for January, which indicated a drop to a six-month low of 49.5, a worse result than the flash reading of 49.6. A reading above 50 indicates expansion and a reading below 50 indicates contraction. The Shanghai Composite Index fell 0.82 percent on Thursday to 2,033 (FXI). Hong Kong’s Hang Seng Index declined 0.48 percent on Thursday to 22,035 (EWH).
In Europe, stocks declined moderately, following disappointing earnings reports from a number of companies including Electrolux, manufacturer of vacuum cleaners which can operate in reverse, as I learned to my delight as a young boy, who vacuumed-up Lincoln Logs, only to switch the Electrolux to reverse and fire them across the room. Electrolux shares sank 8.8 percent on Friday. The Euro STOXX 50 Index declined 0.44 percent to 3,013 – falling further below its 50-day moving average of 3,055. Its Relative Strength Index is 39.81 (FEZ). The closing bell brought the European stock market its worst January since 2010.
Technical indicators revealed that the S&P 500 fell further below its 50-day moving average of 1,812 after falling 0.65 percent to finish Friday’s trading session at 1,782. Its Relative Strength Index (RSI) dropped from 42.95 to 39.82. The MACD continues to sink past negative 8, which is its lowest level since early September, suggesting that the S&P could continue its decline during the immediate future.
On Friday, only two sectors were in positive territory, while the other seven sectors were in the red, with the consumer discretionary sector taking the hardest hit.
Consumer Discretionary (XLY): -1.41%
Technology: (XLK): +0.23%
Industrials (XLI): -0.50%
Materials: (XLB): 0.65%
Energy (XLE): -1.29%
Financials: (XLF): -1.17%
Utilities (XLU): +0.83%
Health Care: (XLV): -0.87%
Consumer Staples (XLP): -0.49%
Bottom line: The stock market reacted less drastically to its second consecutive “emerging markets Friday” selloff. During the heyday of the quantitative easing program, the stock market used to have bullish, “Manic Mondays”. As the tapering agenda moves to its next level, the stock market is now experiencing bearish “emerging markets Fridays”.
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