Stocks Fall as Markets Send Mixed Signals on Economy -- 3rd Update

By Kenan Machado and Christopher Whittall Features Dow Jones Newswires

Global shares continued to edge lower Tuesday, while haven asset prices rose and the dollar fell, as investors remained cautious amid conflicting signals on the economy from financial markets.

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A series of political and economic events due on Thursday also damped risk appetite, including closely-fought U.K. elections and former U.S. Federal Bureau of Investigation Director James Comey's public testimony about alleged Russian interference in the 2016 election.

The Stoxx Europe 600 was down 0.3% recently, dragged lower by health-care and mining shares. Futures pointed to a second straight day of losses on Wall Street, with S&P 500 futures down 0.1% recently. Shares in Asia were mostly lower.

Investors moved into typical havens, with gold, the Japanese yen and Treasury bond prices all rising. Meanwhile, the WSJ Dollar Index, a measure of the dollar against 16 other currencies, was down 0.2%, close to where it was on Nov. 8, before President Donald Trump's election victory sent the buck soaring.

Various stock markets around the world, including the S&P 500 and Dow Jones Industrial Average, climbed to record highs last week amid optimism about the health of the global economy and corporate earnings growth.

But some investors have begun to question whether current equity valuations are justified, particularly given concerns over the Trump administration's ability to push through its agenda, and note that other markets are flashing a warning sign over growth prospects.

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Hopes of higher growth following Mr. Trump's election pushed the dollar and stocks sharply higher, and Treasury bond prices and gold down. Now, while much of the move in the dollar, Treasurys and gold has retraced in recent months, stock markets remain near record highs.

"Either the gold and bond investors are wrong, or the equity markets are wrong," said Julian Howard, head of multi asset solutions at Swiss investment manager GAM.

Mr. Howard said his team is close to dialing down its equity exposure and moving more into income-generating bonds such as mortgage-backed securities--its first major allocation change since the aftermath of Mr. Trump's election.

"Our sense is equity markets are fairly close to exhaustion," he said.

The 10-year Treasury yield declined to 2.153% from 2.182% on Monday, according to Tradeweb. Yields fall as prices rise. Gold prices were up 0.7% at $1,291 an ounce. In currency markets, the yen rose 0.7% against the dollar.

David Vickers, a portfolio manager at Russell Investments, said U.S. stocks are too high given a "thoroughly mediocre" U.S. economy.

"The market is expecting higher economic growth, which we don't think you're going to get," he said.

In the nearer term, there are a number of potential flashpoints this week that could unsettle investors. The White House said on Monday that Mr. Trump wouldn't seek to block Mr. Comey's testimony before Congress scheduled for Thursday. A closer-than-expected U.K. general election and a meeting of the European Central Bank will take place on Thursday too, and investors are also mindful of ongoing geopolitical tensions in the Middle East.

The British pound was slightly higher against the dollar and the euro on Tuesday. But a gauge of how much investors are willing to pay to buy protection in derivatives markets against a sharp slide in sterling reached levels not seen since the time of last June's Brexit vote.

In Asian markets, the stronger yen weighed on the shares of Japanese exporters, helping to drag down the Nikkei Stock Average 1%. Australia's S&P/ASX 200 fell 1.5% after brokerages cut forecasts for first-quarter growth estimates to their lowest level since 2009.

Shares in Hong Kong bucked the trend, with the Hang Seng Index ending up 0.4% thanks to heavy buying of Chinese property developers by mainland Chinese investors. Chinese shares also ended slightly higher.

Brent crude oil prices fell 0.1% to $49.40 a barrel. That followed a volatile session on Monday after Saudi Arabia, Bahrain, Egypt and the United Arab Emirates cut diplomatic ties with Qatar.

Suryatapa Bhattacharya and James Glynn contributed to this article.

Write to Kenan Machado at kenan.machado@wsj.com and Christopher Whittall at christopher.whittall@wsj.com

(END) Dow Jones Newswires

June 06, 2017 06:05 ET (10:05 GMT)