Text size
China’s leading banking regulator noted the high equities valuations of developed markets.
The shares were challenged on Monday after comments from a Chinese regulator hinted that it considers the stock market to be overvalued. Observations overshadowed another drop in rates, which usually raises stocks.
He
Dow Jones industrial average
it fell 143.99 points, 0.46%, to close at 31,391.52 points. He
S&P 500
fell 31.53 points, or 0.81%, to end at 3,870.29 and the
Nasdaq Composite
fell 230.04 points, or 1.7%, to close at 13,358.79. The biggest winner of the Dow was the chemical giant
Dow
(ticker: DOW), which saw shares rise 1.9% in an update.
Guo Shuqing, head of China’s Banking and Insurance Regulatory Commission, told a news conference: “Financial markets are trading at high levels in Europe, the United States and other developed countries, which is contrary to the economy. real “.
These words from China’s top banking regulator scared investors into stocks, not because Shuqing necessarily has more information or information than those who make investment decisions, but because stocks are trading at high levels.
Now investors could think twice about current levels of exposure to stocks. First, the ratings extend. The S&P 500 equity risk premium, or the excess rate of return required by investors to place it at the average value of the index above the yield on insurance bonds, stands at approximately 3, 15%. The lower the premium, the less attractive the stocks are and the risk premium has rarely fallen below 3% in the last decade or so, according to a survey by strategists at Morgan Stanley.
“Conversations in China seem to have lost risky assets today,” said Tom Graff, head of fixed income at Brown Advisory De Barron.
Interest rates have calmed down recently, which has been a good development for equity investors. After hitting 1.55% last week, which has risen sharply since mid-February, the ten-year Treasury yield has fallen, falling to 1.41% on Tuesday. Higher rates indicate that inflation and demand expectations are firm, for sure, but the recent disorderly rise in rates was taking too much of a bite out of the current value of future corporate profits to ignore them. With rates rising in the last few days of trading, stocks have risen again, with the S&P 500 up 2.2% since Friday morning, marking the lowest point in the index during last month.
Lower rates disproportionately benefit growth stocks, but it was the group’s shares that drove the market down on the day. He
ETF Vanguard S&P 500 Growth
(VOOG) fell 1.3%, with the value counterpart only 0.2%. “I’m not sure [the selloff is] directly related to rates, ”Graff said. “China can be on the move [stocks] today, but rates are the important thing to keep in mind. ”
The Chinese regulator’s comments raised already persistent fears and investors are well aware that stocks are rising against bonds. More positive developments are needed to move actions significantly more in the short term.
Write to Jacob Sonenshine to [email protected]