Stock losses accelerated Friday, as the PMI data rolled in and President Trump threatened tariffs, all put against stretched valuations heading into a trying Friday.
All three major U.S. indices fell, with the S&P 500 down as much as 2.9%, worse than the morning’s intraday loss of 2%. The 10 year treasury yield slipped to 0.63% from 0.64%, but the move into safety this week has been more into cash than bonds.
Treasury prices have risen as central banks have supported the market with stimulus, partially driving huge stock gains since late March. Bank of America Global Research said $90 billion have flowed into cash globally this week, against $10.6 billion moving into bonds. The move into cash signifies that safe bonds are becoming less attractive, but also that the fear of another stock market correction may be getting underway.
In the morning, President Trump threatened more tariffs on China in retaliation for what he thinks was been a weak response from China on Coronavirus.
Also, the Institute for Supply Chain Management said Friday morning that activity shown by the Purchasing Managers Index shrunk year-over-year, with another reading below 50. April’s reading was 41.5 against March’s of 49.1, as April encapsulates a full period of lockdowns.
"We’ve seen similar data across global markets over the last few weeks, so there is little shock value in today’s numbers,” wrote Binay Chandgothia, Managing Director and Portfolio Manager for Principal Global Asset Allocation, part of Principal Global Investors in emailed remarks to reporters.
Indeed, the market has priced in a 2021 earnings rebound and looked past what will be an ugly 2020 for earnings and economic growth.
Now, valuations are stretched against the risk of more lockdowns, another spike in infections and now tariffs.
Investors may even be getting nervous about what they had previously overlooked, according to UBS’ Chief Investment Officer of Global Wealth Management, Mark Haefele. "Equities fall amid weak US economic data,” he wrote in a note, before adding that "We expect stocks to remain volatile as investors evaluate fast-moving news on the course of the pandemic, the gradual lifting of lockdowns, data on potential treatments and vaccines, and economic releases.”