Tuesday, June 19, 2018

U.S. stocks buck turmoil weighing on global markets

NEW YORK — A burst of buying Friday in U.S. stocks defied slumps in other markets and offered hope for investors shaken by geopolitical turmoil. Major U.S. stock indexes closed up around 1 percent, buoyed by signs that tensions in Ukraine might be easing.

The rally on Wall Street contrasted with price declines in European and Asian stock markets. Fear has been creeping into stock and bond markets around the world in recent weeks against a backdrop of escalating global conflicts.

News of U.S. fighter jets dropping bombs in Iraq on Friday and the end of a three-day cease-fire in Gaza weighed further on European and Asian markets. The declines there capped broad losses for the week, including a 5 percent drop in Japan's major stock index.

As anxieties have risen in recent days, money has been flowing from around the world into U.S. Treasury bonds, the perennial safe haven for spooked investors.

U.S. stock markets bucked the trend Friday as investors snapped up shares that had been beaten down in recent days. The buying surged late in the day on reports that Russia had ended military exercises near Ukraine.

The Dow Jones industrial average surged 1.1 percent, its biggest gain since March. The index remains 3.4 percent below its record high set July 16.

Jim Paulsen, chief investment strategist at Wells Capital Management, said he wasn't surprised by the Wall Street rally.

"The U.S. economy will grow at 3 percent or 4 percent for the rest of the year," Paulsen said. "Are geopolitical risks really going to have an economic impact?"

It's a question that has been unsettling investors.

In June and most of July, prices in major stock indexes in the United States rose even in the face of the widening conflicts around the world. Some experts warned that markets had grown dangerously complacent.

But then the West imposed increasingly crushing sanctions on Russia for supporting rebels in Ukraine. Israel's bloody war in Gaza dragged on. And Sunni extremists made advances in northern Iraq.

Prices then began a sustained decline, even in resilient U.S. markets. U.S. stocks in July posted their first monthly loss since January.

The fear has driven up various government bond prices, too, and sent yields down. The yield on German government notes maturing in 10 years, for instance, hit an all-time low Friday. The yield on U.S. notes of the same maturity has reached its lowest level in about a year.

Another sign of worry, the VIX, a gauge of expectation of future U.S. stock volatility, has climbed nearly 50 percent since early July.

One fear is that Europe could fall back into another recession after having emerged from one last year. The economies of the 18 countries that share the euro currency are barely growing, and many of them depend on Russia for natural gas imports. Germany imports nearly all its natural gas from Russia.

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