Page 25 - ARUBA TODAY

BUSINESS Monday 5 February 2018
A25

Investment pros staying calm after rate fears clobber stocks

By STAN CHOE ernment report said wages make investors less willing
AP Business Writer last month rose at the fast- to pay high price-earnings
NEW YORK (AP) — The stock est pace in eight years. ratios. Hence all the focus
market has finally found Bigger paychecks are a on exactly how many times
something to fear. welcome sight for workers, the Fed will raise rates this
For more than a year, in- but can also signal that in- year.
vestors have brushed off flation is about to pick up Still, many fund managers
bombastic talk about nu- across the economy. In- and analysts say they’re
clear war, dysfunction on flation has been relatively optimistic stocks can keep
Capitol Hill and other wor- dormant since the reces- rising, even if interest rates
risome situations. The Dow sion. This week, the Federal continue to climb. As long
Jones industrial average Reserve said it expects in- as inflation doesn’t spike
and the Standard & Poor’s flation to finally pick up this out of control, stocks can
500 glided to record after year. rise if earnings continue to
record, with few hiccups. The Fed could raise interest grow.
This week, the calm rates more quickly than in- Many analysts expect In this Feb. 2, 2018 file photo, specialist Meric Greenbaum works
cracked. The stock market vestors are prepared for if earnings to keep growing on the floor of the New York Stock Exchange.
finally got spooked by an inflation accelerates at too because of the strength in Associated Press
ongoing sell-off in bonds. fast a pace. That could fur- the global economy. Few formance for the last three tors is how rare a decline
As bond prices fall, their ther upset markets, which economists see a recession months of 2017, and 79 per- has been for stocks. Before
yields go up, a signal of have seen an unusual lack striking anytime soon. cent of them have report- Friday, the last time the S&P
rising interest rates. Low in- of volatility for more than The strengthening econ- ed stronger revenue for the 500 index fell 2 percent in
terest rates have been an a year. After Friday’s jobs omy is translating into not quarter than analysts ex- a day was in September
underpinning of the current report, some economists only stronger profits for pected, according to S&P 2016. But historically, pull-
bull market in stocks, now in raised their forecast for Fed companies but also better Global Market Intelligence. backs for stocks are normal,
its ninth year. rate increases this year to sales, something that in- That compares with 67 per- and investors shouldn’t be
On Friday, the rate on four from three. vestors have been keen to cent a quarter earlier. surprised if stocks drop by
the 10-year Treasury note The yield on the 10-year see. Roughly half the com- What makes this past 5 percent or even 10 per-
jumped to a four-year high. Treasury climbed to 2.84 panies in the S&P 500 have week’s market drop partic- cent before they begin ris-
The Dow and S&P 500 each percent Friday from 2.79 given updates on their per- ularly noticeable for inves- ing again.q
lost around 4 percent, their percent late Thursday and
worst week since January from 2.41 percent at the
2016. On Friday, the Dow start of the year. It’s at its
dropped 665 points, or 2.5 highest level since 2014.
percent. Some earnings- “We are rapidly approach-
related selling in big names ing the point at which low
such as Apple and Exxon rates will no longer provide
Mobil added to the swoon. support to the equity mar-
Some investors believe the ket,” said Eric Winograd,
market can recover, noting senior U.S. economist at Al-
that both global econom- lianceBernstein.
ic growth and corporate Those concerns echoed
earnings remain strong. worldwide. Other markets
One hallmark of this bull around the world were
market has been investors’ similarly weak as interest
willingness to buy the dips. rates climbed. The German
This week’s drop could test DAX index lost 4.2 percent
their resolve. over the week, and South
Since the Great Recession, Korea’s Kospi index lost 1.9
ultra-low interest rates have percent.
made it easier for business- Investors have cited low
es and companies to bor- interest rates are one rea-
row. They also have pushed son they’ve continued to
investors into buying stocks buy stocks, even as prices
by minimizing the interest rose faster than corporate
payments from bonds. earnings. By that measure,
Rates were due to rise, and the price-earnings ratio,
investors cast a wary eye the S&P 500 is close to the
on the 10-year Treasury as it most expensive it’s been in
rose earlier this year. Those many years, adjusted for
concerns hit a high point inflation.
on Friday after a U.S. gov- Higher interest rates tend to

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