Market Losses Greater Overseas
What ails the U.S. stock market also is hammering equity markets worldwide.
In fact, as bad as the losses have been for U.S. investors this year, they’re worse for many foreign investors in their home markets--at least in terms of blue-chip indexes.
The U.S. Standard & Poor’s 500 index fell 4.2% last week to end Friday at 1,085.78, the lowest close in nearly three years.
But the S&P; 500’s year-to-date loss of 17.8% is modest compared with the declines in major European and Asian markets:
* Germany’s blue-chip DAX index, for example, fell 8.8% last week to 4,730.67 and is down 26.5%, measured in euros, for the year.
* In Paris, the CAC-40 index slid 5.9% last week to 4,413.51 for a year-to-date loss of 25.5% in euros.
* In Hong Kong, the Hang Seng index fell 6.4% last week to 10,384.20. It’s down 31.2% year to date.
The U.S. Nasdaq composite, dominated by tech stocks, still is one of the worst-performing major indexes worldwide: It fell 6.5% last week to 1,687.70. Though it held above its April 4 low of 1,638.80, it’s down 31.7% for the year.
The Dow Jones industrial average dropped 3.5% for the week, but Friday’s close of 9,605.85 still was 216 points, or 2.3%, above the 2001 low of 9,389.48 reached March 22.
Investors are running for cover worldwide on fears that the stumbling global economy won’t stage a meaningful revival any time soon. As business and consumer spending weaken, so are prospects for corporate earnings.
For much of last week the selling was led by tech and telecom shares. But on Friday, selling in most markets broadened to hitherto safer havens, such as shares of basic-industry companies, insurers and packaged-food makers.
Banks also were slammed on fears of rising bad debts.
The ferocity of selling in some tech shares raised hopes that the final “washout” in the now 18-month-long bear market was finally taking place. But some money managers remain unconvinced.
“I don’t think we are quite there,” said Chris Woods of asset management company State Street Global Advisors in London. “The U.S. market is still overpriced; Europe and the U.K. look more like fair value, but they are tainted by the tech contagion.
“Something has to turn before you buy,” Woods said. “It comes back to profits, profits, profits, and future expectations have yet to get finally in line with reality.”
A growing number of U.S. firms already have warned that earnings in the quarter ending Sept. 30 will be below expectations.
Thomson Financial/First Call said that of the 661 U.S. third-quarter earnings “pre-announcements” so far, 65% were warnings of weaker earnings, and just 18% indicated results will be better than analysts expected. The rest of the announcements indicated results will be on par with expectations.
Market veterans were particularly concerned by last week’s sharp sell-off worldwide because it occurred as trading volume rose.
“In the summer, the trend was down but you did not know whether to believe it because the volume was not there. But now volume has picked up and the trend is still down; this is a clear signal that we are in a bear trend,” said Nick Glydon, a technical analyst at J.P. Morgan.
For U.S. investors who own foreign stocks, via foreign mutual funds, those markets’ deeper losses this year are being magnified by the dollar’s strength against the euro and many other currencies.
A stronger dollar means that investments priced in weaker currencies are worth less when translated from those currencies to dollars.
Thus, while the German market is down 26.5% in euro terms, it’s down 29.2% in dollar terms, according to Bloomberg News data. The Japanese market is down 23.7% in yen terms and down 27.3% in dollar terms.
While the average U.S. stock mutual fund is down 16.9% this year, the average foreign stock fund is down 19.8%, according to fund tracker Morningstar Inc.
