Stocks in major world markets fell on Friday as investors booked profits in sectors that rallied in the wake of the US Presidential election, while a global bond market rout continued on expectations of higher interest rates.
Since the election on Tuesday, investors have flooded into areas such as banking that are expected to benefit from US President-elect Donald Trump’s campaign promises of tax cuts, higher defence and infrastructure spending, and bank deregulation. The expansionary policy is expected to lead to inflation.
The sectors that benefited, including banks, shed some gains on Friday, though the longer-term view is that they will continue to move higher. The S&P financial index was down 0.8 per cent on the session but up 10 per cent for the week, on track for its best weekly performance since August 2009.
In the US, the Dow Jones industrial average fell 43.56 points, or 0.23 per cent, to 18,764.32, the S&P 500 lost 11.79 points, or 0.54 per cent, to 2,155.69 and the Nasdaq Composite dropped 10.87 points, or 0.21 per cent, to 5,197.93.
The spectre of higher interest rates continued to drive bond yields higher, but with the US Treasury market closed for Veterans’ Day, the bond selling centred on Europe.
Italy’s benchmark 10-year yield rose to its highest in 16 months ahead of a key ratings review on Friday from Standard & Poor’s. While a downgrade is not expected by analysts, the “stable” outlook could be affected by political risk and an ailing banking system.
The dollar continued to strengthen, up 0.2 per cent against a basket of major currencies and 2 per cent for the week. The greenback was on pace for its biggest weekly percentage gain in a year.
That strength in the dollar slammed emerging markets, as did concerns Mr Trump may begin to enact protectionist measures once he takes office.
The MSCI emerging markets index dropped 3.3 per cent and was on track for its worst week in six months.
The weakness in emerging markets dented European stocks, with Europe’s index of leading 300 shares off 0.7 per cent.
MSCI’s all-country world index lost 0.9 per cent but was on pace for its best week in seven.
The Mexican peso continued to weaken against the dollar, and was off more than three per cent after touching a record low of 21.395.
Gold dropped 2.7 per cent to $1,227.06 an ounce after touching a session low of $1,224.52, the weakest since June 3, and was down nearly six per cent for the week.
Copper pulled back after a sharp rally this week on expectations of an infrastructure build from Mr Trump’s policies. The metal was one per cent lower at $5,545 a tonne but was still up more about 11 per cent on the week, on pace for its best week in five years.