US shares head for biggest rout in three months as Fed glow fades

US stocks are headed for the biggest two-day rout in three months, while the dollar has trimmed a weekly gain as investors have focused on prospects for a slowdown in global growth and continued to adjust to the end of near-zero interest rates in the US.

Oil fluctuated around $35 a barrel.

The Standard & Poor’s 500 Index pushed its two-day slide to 2.7 per cent, paring a weekly advance fueled by the Fed’s removal of policy uncertainty.

European shares fell for the first time in four days. Government bonds rallied as West Texas Intermediate crude traded near a six-year low, damping inflation expectations.

“It’s a sloppy market,” said Bernie Williams, chief investment officer at USAA Federal Savings Bank.

“The world economy is slowing and China has taken some of the oil demand off the table so you’ve seen a huge wipe out in commodity stocks. Investors are wondering if this is really indicative of slowing economy or if there is something deeper here.”

Optimism

While this week’s Fed rate decision removed a measure of uncertainty on financial markets and added to optimism that the world’s largest economy is on a firm footing, it did little to allay concern that global growth remains vulnerable to a slowdown in China and a related rout in commodities.

Oil continues to trade near levels last seen during the global financial crisis, stoking worry that junk-rated energy producers won’t be able to remain solvent.

European shares meanwhile fell in volatile trade. The pan-European FTSEurofirst 300 index fell 1 per cent after gaining 1.3 per cent on Thursday. The euro zone’s Euro Stoxx 50 index fell 1.4 per cent. In Dublin, the Iseq was flat.

“Yesterday’s rally was a bit overdone and investors are taking profit as they prepare for the holiday. Lower oil prices this morning and weaker US markets gave the pretext to sell,” said Stephan Rieke, senior economist at BHF-BANK in Frankfurt.

“Looking forward, I expect volatility to persist in the coming sessions, but the market could gain some strength as we move into 2016,” he added.

Reuters