Emerging market worries prompt selloff, but bulls remain
By David Randall
NEW YORK (Reuters) - The steep selloff that pushed down the benchmark Standard & Poor's 500 index five percent over three days may say more about the outlook for emerging markets than U.S. companies in the fourth quarter, fund managers and analysts say.
China's economic slowdown, recessions in Latin American countries such as Brazil and Chile, and a breakdown in commodity prices - combined with a thinly-traded market as many investors become more focused on tide charts than trading terminals - are prompting traders to overlook improving U.S. economic data, said Alan Gayle, portfolio manager at RidgeWorth Investments.
"There's a great deal of nervousness around the weakness in China, and that's overshadowing the fact that the U.S. economy is sound and the European Union economy is firming," he said.
Sales of existing U.S. homes rose in July to their highest level since 2007. U.S. auto sales, meanwhile, are on track for their best year in a decade.
Attention will return to those domestic metrics as the Federal Reserve begins its annual meeting in Jackson Hole, Wyoming, next week. Investors will be looking for any signs that the central bank is increasingly worried about global issues or whether it is going ahead with what had been a widely-expected interest rate hike in September.
The Fed has said its decision to raise rates will depend on data such as an improving jobs market and housing market. Should the Fed signal that it plans to raise rates, investor sentiment toward the United States and emerging markets may further diverge.
Minutes released Wednesday of the central bank's most recent meeting revealed Fed officials were concerned about "recent decreases in oil prices and the possibility of adverse spillovers from slower economic growth in China," a detail which helped spark the selling.
At the same time, North Korea put its troops on war footing Friday after South Korea rejected an ultimatum to halt anti-Pyongyang broadcasts. The prospect of war, or signs of more global worries, could further dampen U.S. stocks in the week ahead. Continued...