Broker Check

October 8, 2018 - Global Equities Decline Amid Yield Surge, Italy's Political Turmoil

| October 08, 2018

U.S. equity volatility picked up this week, thanks to a bout of selling in U.S. stocks on Thursday and Friday. The S&P 500 Index posted its worst week since June as the 10-year Treasury yield climbed to its highest level since 2011, boosted by evidence of labor market tightening and wage growth in economic data. On Wednesday, the 10-year yield jumped 12 basis points, the largest single-day increase since the 2016 presidential election, as the yield broke above highs reached earlier this year. Technology and communications services sectors bore the brunt of selling pressure as the Nasdaq slid more than 3%. The Dow was the best performer among major U.S. indices amid strength in financials and industrials stocks.

"The bond market selloff has stock market investors a bit jittery," noted LPL Chief Investment Strategist John Lynch, "but keep in mind that stocks and interest rates have generally risen together in recent decades. Add to that recent strong economic data consistent with 3% gross domestic product growth, and we think the recent bout of equity weakness could be a buying opportunity for suitable investors."

U.S. stocks’ weakness weighed on overseas markets, as the MSCI Emerging Markets Index fell more than 3%, many foreign developed indexes dropped more than 1%, and government bond yields spiked. Yields on Germany’s 10-year bund hit four-month highs, while Italian debt yields reached four-year highs. Italy’s bond woes stemmed in large part from government officials’ ongoing dispute amongst themselves and with the European Union over spending caps in the country’s projected budgets. Stocks in Asia followed suit with Hong Kong’s Hang Seng Index getting hit particularly hard in the wake of a Bloomberg report that accused China of inserting tiny chips into hardware during the manufacturing process in order to infiltrate U.S. technology companies and compromise the supply chain. Recent strong U.S. economic data and rising concerns about the impact of the trade tensions on China’s economy also contributed to the equity selloff, though our expectation remains for the two countries to come to terms without the situation escalating to an all-out trade war.

Next week’s economic calendar is fairly light, but there are some notable releases that include producer and consumer price indexes, and the University of Michigan Consumer Sentiment Survey in the U.S. Abroad, investors will be scrutinizing import-export data, trade balance figures, and Chinese foreign direct investment out of China to help gauge the impact of ongoing tensions. Track these and other important events on our Weekly Global Economic & Policy Calendar.


IMPORTANT: The projections or other information generated by GWP regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Results may vary with each use and over time.

Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Past performance is not indicative of future results. The tax loss harvesting and other tax strategies discussed should not be interpreted as tax advice and there is no representation that such strategies will result in any particular tax consequence. Clients should consult with their personal tax advisors regarding the tax consequences of investing.

Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor


For Client Use - Tracking #1- 778958 (Exp. 9/19)