A gust of deflation stirs skittish stock market

“Listen to the stock market the past couple of weeks and you’ll hear the hiss of deflation, of air leaking out of the 2013 rally as concerns build about downward pressure on economic growth, prices and corporate profit potential,” Michael Santoli writes for Yahoo Finance.

“While the Standard & Poor’s 500 index ebbed 3.5% from its recent all-time high to Thursday’s close, this represents a sub-surface correction among stocks exposed to global economic momentum finally roiling the market’s surface,” Santoli writes. “The index’s energy and basic-materials sectors are each down more than 5% in the past week. Gold, suffering from dimming concern about systemic financial risk as well as cooling inflation worry, is down more than 20% from its all-time high and down 10% since April 11. Crude oil is off 15% since February and lumber futures are lower by 10% in a month.”

Santoli writes, “The official consumer price index for March showed an unexpected decline of 0.2% this week, dragged lower by sliding gasoline prices, and the core measure of inflation remains handily below the Federal Reserve’s long-term target. None of this means the economy is at an outright stall, or that true deflation – broad and persistent price declines – is likely to take hold. But it suggests that economic momentum has flagged enough to stir doubts that high corporate profit margins can hold up, while undermining once-urgent worry that the Federal Reserve will quickly reduce its easy-money stimulus efforts.”

“This core worry has essentially separated the winners from the losers in this year’s stock market. Shares of makers of earth-moving equipment and other capital goods have been discarded. Semiconductior stocks have lagged,” Santoli writes. “Even the massive liquidation of Apple Inc. (AAPL) stock derives from fears it won’t retain a price premium for increasingly commoditized iPhones and will offer cheaper phone models, savaging its lush profit margins.”

Read more in the full article here.

[Thanks to MacDailyNews readers too numerous to mention individually for the heads up.]

8 Comments

  1. An Apple a day, keeps the doctor away.
    If only they knew the market (stock) would realise that the solution is to buy an Apple share a day to keep the bears at bay!

  2. Given the current world-wide economic stagnation, the optimistic stock market is way over its head. Another bubble burst coming? Sure seems like it.

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