Global Stocks Poised for Weekly Declines

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08/11/2017 | 04:07 pm

By Justin Yang and Corrie Driebusch
-- Global stocks fall on further North Korea rhetoric

-- Wall Street recovered slightly in Friday morning trade

-- Haven assets rise

U.S. stocks were on track for their biggest weekly loss in months, shaken by disappointing earnings results and an escalation of threats between the U.S. and North Korea.

On Friday, stocks recovered slightly, with the S&P 500 and Dow Jones Industrial Average up 0.2%. The S&P 500 is set to end the week down 1.4%, its biggest weekly loss since March.

The Dow closed down 205 points Thursday, in its biggest decline since May 17, after a string of retailers reported weak earnings and President Donald Trump rejected criticism that his threats to release "fire and fury" had been too inflammatory. Instead, he said his statement "maybe wasn't tough enough."

On Friday, the president appeared to double down on his earlier threat, warning on Twitter that military solutions are in place and "locked and loaded."

"As a portfolio manager, you say, 'Do I think we'll get a war out of this?'," said Torsten Slok, chief international economist at Deutsche Bank. "If the answer is yes, then you better get defensive. If you think this is just rattling sabers, and it's just words, then you could view this as a buying opportunity."

Investors said the rhetoric may have sparked some selling, but it wasn't solely to blame for the sharp fall. Instead, it provided an excuse for a selloff many investors consider overdue.

On average, the S&P 500 falls 5% or more every 10 weeks and the index falls 10% every 33 weeks, according to data analyzed by AllianceBernstein going back to 1928. It has been more than a year since the last 5% downdraft in stocks and more than 76 weeks since the stock market suffered a 10% loss.

"Given the great run we've had, seems like some sort of pullback wouldn't be surprising," said Michael Baele, managing director of investments at U.S. Bank Private Wealth Management.

Earnings results also weighed on stocks. Large retailers Macy's and Kohl's tumbled on Thursday after they reported disappointing second-quarter results. On Friday, fellow retailer J.C. Penney dropped 16% after its second-quarter loss exceeded expectations.

In other corporate news, shares of Snapchat parent Snap fell 13% after it reported earnings late Thursday that missed analyst forecasts. Nvidia's shares shed more than 5% after the chip maker's revenue rose only 2% from the first quarter.

The CBOE Volatility Index -- a measure of investors' expectations for swings in the S&P 500 over the next 30 days -- surged 44% to 16.04 Thursday -- its highest level since U.S. Election Day. It slipped a bit Friday, but was still on track to end the week up more than 50%.

The selling in the U.S. extended to global markets Friday. The Stoxx Europe 600 fell 1%, while benchmarks in Hong Kong and South Korea -- which had been one of the best performers of 2017 -- closed down 2% and 1.7% respectively, Friday, putting the week's drop at 2.5% and 3.2%.

Korea's Samsung Electronics fell 2.8% Friday. China's Tencent Holdings, whose surge in 2017 was key to the Hang Seng's gains, fell 4.9% Friday.

Kenan Machado contributed to this article.

Write to Corrie Driebusch at [email protected]

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