Stocks had a good start early in the week, but comments from Chinese policymakers about halting U.S. bond purchases changed the mood of investors. Moreover, missed earnings forecasts kept investor sentiment low this week.
Despite a lack of corporate earnings and economic data, equity indices were managing just fine and the Dow had a good day on Tuesday, but once news broke out that Chinese officials reviewing their foreign-exchange holdings have recommended to slow or completely halt U.S. bond purchases, stocks turned bearish. It is worth noting that China is the biggest foreign holder of U.S. government debt, and recent tensions regarding North Korea and trade deficit might be the reasons behind this move by China.
One of the biggest economic news of the week came from the Energy Information Administration (EIA) that reported crude oil inventories fell by almost 5 million barrels last week, prompting the price of crude oil to reach a three-year high. With surging oil prices, policymakers will be hoping that it will help increase inflation in the short term. Worries about lack of inflation in the economy was a key talking point in the last several Fed meetings, and the planned interest rate hikes depend on a steady increase in inflation in the coming months.
In the end, surging financial and energy sector stocks saved the day and kept equities from gaining additional bearish momentum.
Be sure to check out our previous week’s edition here, in which investors focused on the Wells Fargo’s conundrum over accumulating too much cash.