Expectations of rising US interest rates and uncertainty over the earnings outlook continued to weigh on global equity markets on Monday.
After sharp falls last week, Wall Street struggled, with sentiment additionally hit by a move by Delphi, the auto parts supplier, to file for bankruptcy protection.
By the close in New York, the Dow Jones Industrial Average was down 0.5 per cent at 10,238.76, with the S&P 500 off 0.7 per cent at 1,187.33 and the tech-heavy Nasdaq Composite 0.6 per cent lower at 2,078.92. Trading was light due to the Columbus Day holiday.
Strategists said complacency over the prospect of rising rates had been shaken by comments from US Federal Reserve officials last week expressing concern on the inflation outlook.
“We have not been fighting the Fed this year but maybe taking it for granted. The hawkish comments have grabbed people’s attention,” said Ed Yardeni, strategist at Oak Associates.
US investors also appeared to be awaiting further news from the third quarter results season, which steps up a gear this week.
Some 23 S&P 500 companies are due to release results this week. Mr Yardeni said that, so far this year, the S&P 500’s rolling forward price/earnings multiple had fallen 9.5 per cent to 15 times, while forward earnings expectations had risen 12.5 per cent.
“The bull market in earnings has been largely offset by a bear market in valuation. Of the 113 S&P 500 industries we follow, 81 have seen their multiples drop this year,” he said.
“Most of the declines were concentrated among industries with rising forward earnings. Utilities and health care are the only two sectors with both a rising p/e and rising forward earnings so far this year.”
Asia had a better day on expectations that a stronger US economy would boost the earnings of exporters and commodity companies. With Tokyo closed, South Korea was a notable gainer, with the Kospi index extending its run by a further 2 per cent.
In Europe, the FTSE Eurofirst 300 index rose just 0.2 per cent, or 2.95 points, to 1,210.19. Frankfurt rose 0.3 per cent, or 15.02 points, to 5,022.79 amid news that Angela Merkel was set to become the German chancellor. However, analysts still expressed caution over the prospects for German reform.
Gold moved towards an 18-year peak, touching $478.50 an ounce – its highest level since January 1988.
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