After Thursday’s market selloff which saw the Nasdaq lose over 3 percent, the worst one day drop since August 2011, investors are increasingly on edge as first quarter corporate earnings season gets underway in a trading week that does not present much U.S. economic data.
Investors are left questioning whether the market is ready to rally again despite weaker than expected first quarter corporate earning results due to the cold winter weather, high valuations in many sectors, and less monetary stimulus projected in 2014 and 2015.
The sharp and sudden downturn in U.S. equities began on Friday following March’s jobs report of 192,000 non-farm payroll jobs that only slightly disappointed the consensus estimates of 200,000 but led many investors to conclude that the U.S. job market is on solid footing and the Federal Reserve is unlikely to stop unwinding its quantitative easing program of monthly bond purchases that has helped to drive down long term interest rates and indirectly gave equity markets a solid boost in 2013.
On Monday U.S. equities continued to selloff and the tech-heavy Nasdaq took a heavy toll.
So-called “momentum stocks” which ran up the highest in 2013 with rich valuations and fresh 52 week highs in March have been most susceptible to selling off in April.
On Thursday Facebook plunged 5.21 percent in trading and closed at 59.09 in afterhours trading which is roughly 20 percent lower than its 52 week high of 72.59 in early March.
One day earlier, on Wednesday, U.S. equities indices all rallied over 1 percent after Fed Minutes from the Fed’s March meeting showed that committee members believe that the 6.5 percent unemployment threshold for raising short term interest rates is outdated.
The Fed Minutes also revealed that the central bank could be more accommodative than some were expecting with their monetary policy for the federal funds rate.
“The Committee decided that it was appropriate to add language indicating that the Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run,” the Fed Minutes said.
“In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments” the Fed Minutes said.