Rally Tempers Worst Week for Global Equities in 2 Months

The worst week for global equities in almost two months finished on a positive note as optimism in the economy’s strength helped counter a procession of concerns from geopolitics to valuations and interest rates.

The Standard & Poor’s 500 Index lost 1.4 percent for the week, paring declines on the final day with a 0.9 percent rally. The MSCI All-Country World Index dropped 2 percent for the five days, the most since Aug. 1. The Russell 2000 Index of smaller companies decreased 2.4 percent. The MSCI Emerging Markets Index tumbled 2.8 percent, heading toward its worst month since January. Nike Inc. jumped 9.4 percent for the biggest gain in the Dow Jones Industrial Average as first-quarter profit exceeded estimates.

“People are just looking for excuses,” Donald Selkin, chief market strategist for New York-based National Securities Corp., which oversees about $3 billion, said in a phone interview. “Near these all-time highs, people look to hit the sell button for the lack of real further upside motivations. Every time we get these selloffs, the buyers come in. You can see we’re not going into a bear market.”

Equities fell early in the week as stronger economic data fueled concern the Federal Reserve may raise interest rates sooner than anticipated. The issue took a back seat on the final day as the S&P 500 rebounded from the biggest one-day decline since July on a report showing U.S. gross domestic product expanded in the second quarter at the fastest rate since 2011.

Interest Rates

Investors are analyzing reports to assess whether growth is strong enough to withstand higher rates. The S&P 500 reached a record on Sept. 18 after the Fed maintained a commitment to keep interest rates near zero for a considerable time after completing asset purchases. The Fed also said that the timing could move forward if data continues to exceed expectations.

Interest-rate concerns boosted the dollar, sending the greenback to a four-year high and its sixth straight week of gains. Its rally sent the MSCI Emerging Markets Index to a third week of losses. The gauge has tumbled 5.8 percent in September.

Reports for the week showed the U.S. economy rose at a 4.6 percent annualized rate in the second quarter, up from an August estimate of 4.2 percent. New-home sales surged to the highest level in more than six years, and American factories received more orders for machinery as an improving economy gave companies the confidence to expand.

Earnings Season

U.S. data on employment and output from the manufacturing and services industries are due in the coming week, and companies next month will begin to report earnings for the third quarter.

“Clearly, this is an earnings-driven market,” Terry Sandven, chief equity strategist at Minneapolis-based U.S. Bank Wealth Management, said by phone. “Expectations are high for the third quarter and the question that continues to weigh on investors’ minds is the extent to which the economy slowing in the euro zone may affect the earnings on multinational companies.”

In Europe, the Stoxx 600 fell 1.8 percent, ending the week 2.1 percent below a six-year high. Reports showed German business confidence fell more than forecast in September, while a European manufacturing index fell to the lowest since July 2013. European Central Bank President Mario Draghi pledged that officials will become more active in their fight to restore growth, saying the recovery is losing pace and risks are “clearly” to the downside.

Asia Shares

Asia stocks posted the longest weekly slump since February, falling for a third week. The MSCI Asia Pacific Index retreated 1.7 percent.

China’s Finance Minister Lou Jiwei said growth faces downward pressure and reiterated that there won’t be major changes in policy in response to individual economic indicators. The comments quelled speculation that weaker economic data will spur further stimulus in the world’s second-biggest economy.

Geopolitics continued to weigh on equities. The U.S. and its Arab allies carried out strikes against Islamic State positions in Syria, seeking to reverse the militants’ advances. In Russia, lawmakers began drafting legislation that would allow the government to seize foreign assets in response to sanctions.

The S&P 500 sank 1.6 percent on Sept. 25 as Apple tumbled 3.8 percent, sending technology stocks to the biggest decline since April. The gauge rebounded 0.9 percent the following day. While the S&P 500 is down 1 percent for the month, paring a gain for the quarter, it has not had a four-day losing streak this year and has not fallen more than 10 percent in three years.

Volatility Gauge

The week’s selloff led to an increase in volatility, as the Chicago Board Options Exchange Volatility Index, the gauge known as the VIX, surged 23 percent to 14.85. It slipped 29 percent in August, the biggest monthly loss since October 2011.

Technology shares in the S&P 500 finished the week with a 1.4 percent loss. Selling was heaviest in small-cap and Internet companies that have been among the bull market’s biggest winners. TripAdvisor Inc. and Tesla Motors Inc. fell at least 4.9 percent. The two rose more than 97 percent in 2013. The Russell 2000 has retreated 7.4 percent from an all-time high reached in March.

Health-care stocks in the S&P 500 lost 0.8 percent for the week amid a government crackdown on tax-driven mergers. The Treasury Department announced steps that will make it harder for U.S. companies to move their address abroad to cut taxes, a practice known as inversions.

The changes will have the biggest effect on the eight U.S. companies with pending inversions, including Medtronic Inc., which declined 4.4 percent.

Alibaba, Yahoo

Alibaba Group Holding Ltd. decreased 3.7 percent in its first full week of trading after debuting on Sept. 19. The Chinese e-commerce company surged 38 percent on its first day. Yahoo! Inc., which still owns roughly 16 percent of Alibaba following the offering, fell 0.7 percent.

Janus Capital Group Inc. surged 41 percent to the highest since 2008. Bill Gross, who co-founded Pacific Investment Management Co. and became manager of the world’s biggest bond mutual fund, left that firm to oversee a new bond fund at Janus.

Nike, the world’s largest sporting-goods maker, jumped 9.4 percent to a record after its FIFA World Cup marketing campaign fueled profit and sales.

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