Stocks in Asia were mixed after US equities pulled back from a rally that drove the S&P 500 Index to multiple records, spurring speculation the market has gone too far, too fast.
Japanese equities swung between gains and losses, while shares in Australia declined. The S&P 500 fell for a second day Monday at the start of a week that will feature the Federal Reserve’s preferred inflation measure.
Investors in Asia will be monitoring what comes next in China after the yuan advanced on Monday after the central bank signaled support for the currency, while the country’s equities declined.
“There are no signs of any major imminent shift in policy in China but it is worth keeping in mind that China’s policymakers rarely signal such changes in advance,” Jeffrey Kleintop, chief global investment strategist at Charles Schwab & Co., wrote in a note. “China may remain a drag on the MSCI Emerging Market Index and a key reason emerging market stocks remain less attractive relative to those in developed international markets.”
The yen held in a narrow range within 0.5% of a 17-month low against the dollar, fanning speculation the authorities will remain alert to slow any further losses in the currency.
Treasuries and the dollar were little changed in early Asian trading.
Investors took a cautious stance on bets the personal consumption expenditures price index — due on Good Friday when US markets will be closed — will show inflation probably remained uncomfortably high. On that same day, Jerome Powell is due to speak.
Pullback ‘Overdue’
A sense of prudence prevailed among investors early this week as concern about a disconnect between earnings expectations and share prices have grown. Morgan Stanley and JPMorgan Chase & Co. strategists were the latest to warn it’ll be hard to justify lofty valuations if profit acceleration fails to materialize.
“We continue to see sentiment as stretched and think a US equity market pullback is overdue,” said Lori Calvasina at RBC Capital Markets.
In a sign of how overheated the stock market has been, the S&P 500 finished last week 14% above its 200-day moving average. Still, the combination of healthy US economic data, expectations the Fed will cut rates and optimism about artificial intelligence have all driven the S&P 500 up almost 10% this year.
Goldman Sachs Group Inc. strategists are sticking with their year-end prediction of 5,200 — but have a scenario in which tech megacaps lead the index up to 6,000.
“Although AI optimism appears high, long-term growth expectations and valuations for the largest TMT stocks are still far from ‘bubble’ territory,” the strategists led by David Kostin wrote.
In other markets, oil held the biggest gain in a week, with OPEC+ set to affirm its policy of production cuts amid geopolitical tensions in the Middle East and Russia. Gold was little changed.
