US stocks hit by first quarterly losses since 2015

The S&P 500 was hit by its first quarterly losses since 2015 as questions over global trade and regulation of technology companies — its star sector — weighed on company share prices.
The index, which is made up of the US’s biggest listed companies, has performed better than stock markets in other developed economies, but it has fallen 1.2 per cent this year. In Europe, volatile trading has knocked London’s FTSE 100 down 8 per cent year to date while Frankfurt’s Xetra Dax index fell 6.5 per cent. Tokyo’s Nikkei 225 retreated 5.75 per cent. The three months of pressure on global markets interrupted a trend of rising index-linked returns, which have boosted passive tracker funds but hamstrung active asset managers. Chris Bailey, European strategist at wealth manager Raymond James, predicted that investors would need to get used to higher market volatility and lower returns.
“We’ve been spoilt,” he said. “Markets should return around 6 per cent per annum. We’ve been running at twice that. It’s too high.” The global rally, the latest leg of which began in earnest in 2016, foundered in early February when nerves about the pace of interest rate increases by central banks saw a rapid sell-off, knocking stocks off their highs and jolting investors. April LaRusse, head of fixed-income investment specialists at Insight Investment, one of the UK’s biggest asset managers, said her team sold some positions at the end of January in order to take profit — the move turned out to be a stroke of luck. “Obviously we had no idea we were going to see a big change in the equity market in the mid part of the quarter,” she said. While the S&P largely made back its early February losses before the month ended, the recovery relied on technology stocks, which make up almost a quarter of the index’s weighting. But controversy around Facebook’s ability to protect its customer’s data, combined with increasing calls for the regulation of big tech companies, led investors to jettison the so-called Faang stocks — Facebook, Apple, Amazon, Netflix and Google. Meanwhile, escalating rhetoric from the US, Europe and China over tariffs stoked protectionism fears, encouraging many investors to reduce their holdings in companies exposed to global trade. Investors are adjusting to increasing volatility in equities and debt markets. Credit spreads — the difference between the interest rate a company can secure for its loans versus a “safe” payer such as Germany’s government — have also widened as investor confidence ebbs in companies’ abilities to pay their debts. In Europe, credit spreads had narrowed considerably since 2016 because of the European Central Bank’s bond-buying programme. An index of non-financial European corporate bonds that hit its lowest level on record of 71 in January has jumped to a reading of 92. But some investors cautioned that prices have not fallen far enough during the quarter to whet any buying appetite. “In many asset classes, we’ve simply gone from very expensive to expensive,” said Dan Kemp, chief investment officer for Europe, Middle East and Africa at Morningstar Investment. “That’s not the same as saying that they’re cheap.” Some money managers stressed that economies remain strong in much of the world while companies with US business will get an earnings boost from tax reforms. Economic fundamentals have not changed, argued Ms LaRusse. “We actually still feel quite constructive about the environment,” she added, where investors can buy their favoured markets at cheaper levels. “In Q2, we’re looking to put back a bit of risk.” And after historically low volatility levels in 2017, active fund managers are hoping to benefit from moving markets. “It will be an incredible test of the active management industry, who’ve been talking about how they can’t compete in markets that are going straight up,” said Kemp.

FT