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Global markets extend slide as JPMorgan earnings fuel jitters

Men are reflected in a screen displaying a graph showing the movements of recent share averages outside a brokerage in Tokyo April 11, 2014. Japanese shares tumbled to six-month lows on Friday and could log their worst performance since the March 2011 tsunami and nuclear disaster after a rout in U.S. tech shares spurred selling by momentum players.


Global stocks continued their bout of turbulence with major U.S. indexes opening lower and markets in Asia and Europe reacting to the sharp selloff on Thursday.

The S&P 500 fell 0.6 per cent soon after trading began on Friday morning, and the Nasdaq composite index made a similar move, a day after recording its biggest one-day decline in two-and-a-half years.

Overseas, the moves were more pronounced. In overnight trading, Japan's Nikkei 225 fell 2.4 per cent, while Germany's DAX index fell 1.9 per cent in afternoon trading.

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The latest volatility follows disappointing earnings reports from a couple of heavyweights in the U.S. financial sector. JPMorgan Chase & Co. fell 4.2 per cent after it reported that its first quarter earnings fell 19 per cent from last year. The bank reported earnings of $1.28 (U.S.) a share, down from $1.59 in the first quarter of 2013. That was well below expectations of $1.46 a share.

Wells Fargo & Co. fell 4.8 per cent. Though its earnings rose 14 per cent over last year, to $1.05 a share, revenue fell 3 per cent, highlighting some of the growth challenges U.S. financials are having.

The market reversals over the past couple of days have pushed the S&P 500 into negative territory for the year, and down 3.6 per cent from its record-high on April 2.

There are a number of issues weighing on the market. A sharp drop in China's exports and imports in March, according to data released on Thursday, have raised more concerns about the health of the country's economy. While authorities have targeted annual growth of 7.5 per cent, some observers now believe that 7 per cent growth is more likely, which marks a dramatic reversal from double-digit economic growth in recent years.

As well, the U.S. Federal Reserve is in the midst of tapering its monthly bond-purchases and is now sending mixed messages over its intentions to raise its key interest rate, expected sometime next year. The withdrawal of monetary stimulus is affecting some of the more highly valued stocks, including those in the technology and biotech sectors – contributing to the Nasaq's 3.1 per cent decline during Thursday's rout.

Still, a number of strategists and market watchers are recommending investors stay calm during the market turbulence, arguing that the backdrop to global equities remains healthy in the longer-term.

Michael Hartnett, chief investment strategist at Bank of America, believes that a substantial correction is coming later this year when the Fed completes its tapering. But for now, the U.S. economy is demonstrating its most sustainable growth since 2005, credit markets are strong and investors are sitting on a lot of money.

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"While bears are jumping for joy, bull markets don't end with such high cash and low leverage," he said in a note. "Bears looking for a big 10-15 per cent correction should wait until September and then buy volatility and raise cash as Fed QE ends and rate hike expectations grow at the FOMC meetings Sept 17th/Oct 29th."

Strategists at Pavilion Global Markets argued that the downturn has been concentrated for the most part in stocks with high valuations, leading them to the conclusion that investors are merely rotating out of expensive stocks.

"This market weakness is more consistent with a sector rotation or an adjustment in risk‑return outlooks than a full blown retreat," the strategists said in a note. "If investors were convinced that we are in a bear market, all stocks would be pummeled."

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About the Author
Investing Reporter

David Berman has been writing about business and investing since 1995. He has written for a number of magazines, including Canadian Business and MoneySense. He worked at the Financial Post as an investing writer and daily columnist before moving to the Globe and Mail in 2008. More


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