This sell-off isn’t the start of a bear market, analysts say

The sell-off this week isn’t the start of a major or prolonged bear market, but rather, simply a correction, experts said on Friday.

Markets over the last few days have plunged, with U.S. stocks posting their worst two-day stretch in eight months. The three major indexes — the Dow, the S&P 500 and the Nasdaq Composite — all fell more than 5 percent between Wednesday and Thursday. Asia markets followed suit on Thursday, with mainland China markets tumbling more than 5 percent, and Japan’s Nikkei index falling almost 4 percent.

Despite those moves, financial services firm Barings said in a note that there’s no cause for panic yet.

“The sharp sell-off we are seeing in the market has left a lot of folks wondering if this is the beginning of the end. Investors shouldn’t panic,” said Christopher Smart, head of macroeconomic and geopolitical research at Barings.

“So far, it has the feel of a temporary correction that will take some of the excess air out of tech stocks,” he said. This year, shares of technology companies have outperformed other sectors, but were hit hard by the losing streak on Wall Street on Thursday.

That sentiment was echoed by asset management firm Amundi, which said that the “bear checklist is not yet flashing red.”

“Economic indicators are still sound with growth above potential albeit slowing also in the US, while on financial market indicators, the picture is more scattered but not scary,” Amundi experts said in a report.

Shane Olivier, head of investment strategy at AMP Capital, said “history tells us” a major bear market requires a recession in the U.S., but that is not happening.

American markets have over the last week been pushing stocks around the world lower. Still, experts painted a picture of a U.S. economy that is healthy, even if growth is expected to slow.

U.S. monetary conditions are “far from tight,” said Olivier, with fiscal stimulus still in play and no signs of excessive market conditions that normally precede a recession.

“A US recession still looks a long way off and this in turn suggests that the trend in earnings and hence share markets is likely to remain up beyond the near term pull back,” he said in a note.

The Amundi report also pointed out that signs, so far, do not suggest majorly exuberant conditions: Debt levels look healthy, and there aren’t any initial public offerings with excessive valuations.

In fact, debt levels seem to be going down in the U.S., and there isn’t too much debt in Europe, although some areas in emerging markets need to be watched, the report said.

Smart of Barings added: “Yes, there are signs of reflation in the United States with unemployment at record lows and wages rising, but inflationary expectations still seem muted and the Fed doesn’t seem like it’s behind the curve.”

Smart suggested that markets are reacting “emotionally,” with U.S. President Donald Trump saying the Fed was “crazy” for continuing to raise interest rates, and tensions with China getting worse after a speech by Vice President Mike Pence.

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