Global fears, domestic calm may split week

Sun Aug 23, 2015 6:40pm EDT
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By David Randall

NEW YORK (Reuters) - The steep and accelerating selloff that pushed the benchmark Standard & Poor's 500 index into its worst week in almost four years may say more about the outlook for emerging markets than the U.S. companies in the S&P, fund managers and analysts say.

China's economic slowdown, recessions and weak economies in Latin American countries such as Brazil and Chile and a breakdown in commodity prices 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.

As U.S. stock index futures opened for trading on Sunday, they suggested that a moderate decline would continue Monday morning. S&P 500 and Dow Jones index futures ESc1 1YMc1 were down about 0.8 percent shortly before 20:30 GMT, while Nasdaq index futures NQc1 traded down about 0.7 percent.

On Sunday, stocks in Saudi Arabia and other Middle East markets fell sharply, the latest to react to declining oil prices and a weaker China, though some investors suggested the global selloff was overdone.

"The classic combination of contagion and market overshoots is brewing," Mohamed El-Erian, chief economic adviser at Allianz SE (ALVG.DE: Quote), told Reuters Friday, noting that U.S. economic indicators were diverging from others.

Wall Street may pull back from that international focus at midweek, as the Federal Reserve begins its annual meeting in Jackson Hole, Wyoming.

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. U.S. and emerging markets stocks could diverge.   Continued...

Investors talk in front of an electronic board showing stock information at a brokerage house in Beijing, China, August 21, 2015.  REUTERS/Stringer