Markets Remain Cautious after Roller Coaster Week

By Joyce Yu

Philadelphia, PA–Market sentiment remained cautious following volatile week. Investors will continue to pay attention to geographic events and comments of central bankers ahead of this week’s meeting.

The Dow fell more than 75 points on Friday, after plunging nearly 275 points Thursday. Wall Street shares were briefly boosted on Friday after it was reported that controversial White House chief strategist Steve Bannon was resigning.

“Markets seem to think that the administration will remain fragile and its ability to carry out its policies will be hampered even after Bannon’s departure,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management, to Reuters.

But three US major indices all fell just slightly for the week. Year to date, however, the Dow is still up 10% and blue chip stocks are not far below all-time highs.

US premarket opened lower Monday. European markets continued to slip in their morning sessions while Asian markets were mixed.

The markets have not suffered a 10% pullback since late 2015. Some market strategists are not in the opinion that a big drop is even possible in near term.

Tom Anderson, chief investment officer at Boston Private, told CNN that stocks still look solid because earnings have been strong.

“There are investors who have taken money out of the market because they’re concerned about politics,” said Anderson, “But it’s hard to wait for some magical entry point. If you’re expecting a 10% correction, you may not see it for a while.”

Dig deeper though and it’s clear that shift in market sentiment is notable. But other investors told CNN that a pullback is not just needed, but likely.

EPFR Global data showed $1.3 billion was pulled from equity funds in the week ending Aug. 16.

Prices of Gold, typically considered a safe haven, rose above $1,300 an ounce for the first time since last November.

Looking forward, Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi are among central bankers gathering at Jackson Hole, Wyoming, later this week for their annual meeting. The theme this year is “Foster a Dynamic Global Economy,” at a time when the US is facing persistently weak inflation while elsewhere are concerned about sustained economic growth.

Comments last week from Fed officials suggested the stock market’s steady rise, still low long-term bond yields and a sagging dollar are girding the Fed’s intent to raise interest rates again this year despite concerns about weak inflation, according a Reuters’ report.

“People focus on inflation but in the Fed’s minutes policymakers spend a lot of time discussing whether bond yields are too low or asset prices are too high. If Yellen questions market stability, markets will expect a tighter policy,” Hiroko Iwaki, senior bond strategist at Mizuho Securities, to Reuters.

Separately, investors were also wary of any flare-up of tensions between North Korea and United States ahead of U.S.-South Korea drill.