Stock markets started with a major correction this week as the Dow plunged around 540 points in the first two days, but improving consumer confidence driven by a strong labor market finally turned the tide on Wednesday.
We asked investors to keep an eye on Treasury yields in our U.S. Economic Outlook for 2018, and as the 10-year Treasury yield reached 2.73%, it triggered a huge bearish move in key equity indices this week. Nonetheless, key labor market data showed the Fed’s estimates about a slowing job market have not yet started as nonfarm payrolls figure went up sharply. Meanwhile, a number of large-cap stocks beat estimates by Tuesday, which finally turned the table for bears.
In the end, corrections are part of a bullish stock market but some economic indicators have already exposed the underlying softness in the economy last week. Hence, it would be wise to stay away from high P/E stocks for the time being and start acting more conservative about downside risks.
Be sure to check out our previous week’s edition here, in which we discussed the signs of a softening economy.
