U.S. Stocks Poised for Weekly Decline

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08/11/2017 | 08:51 pm

By Corrie Driebusch and Justin Yang
-- U.S. stocks recover slightly Friday

-- Major indexes around the world set for weekly declines

U.S. stocks rose Friday but were still 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.

The rhetoric, which began late Tuesday and continued into Friday, cracked the calm that has enveloped the market for months and interrupted stocks' march higher. The Dow Jones Industrial Average, which had been steadily hitting records, posted its biggest decline since May on Thursday, while the CBOE Volatility Index, known as Wall Street's "fear gauge," rose to its highest level of the year.

Markets recovered slightly Friday. Investors dipped back into stocks and retreated from assets they consider to be safer stores of value, such as gold.

"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, referring to the back and forth between North Korea and President Donald Trump. "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."

The Dow industrials rose 42 points, or 0.2%, to 21885 on Friday. The S&P 500 added 0.3%, though it was on course to end the week down 1.3%, its biggest loss since March.

The escalation provided an excuse for a selloff many investors consider overdue, some investors and analysts said.

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.

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

Investors said the week's swings were as much a result of earnings as geopolitics.

Large retailers Macy's and Kohl's tumbled on Thursday after they reported another quarter of shrinking sales. Shares of fellow department store J.C. Penney dropped 15% Friday after the company's second-quarter loss exceeded expectations.

Shares of Snapchat parent Snap fell 12% after it reported earnings late Thursday that missed analyst forecasts.

Thursday's selling in the U.S. extended to global markets Friday. The Stoxx Europe 600 fell 1%. Hong Kong's Hang Seng shed 2% Friday and lost 2.5% for the week -- its biggest weekly decline of the year. South Korea's Kospi declined 1.7% Friday, putting its weekly drop at 3.2% -- its largest since June 2016.

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

Write to Corrie Driebusch at [email protected]

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