Stock Market Quarterly Review: After a Scare, Overseas Rally Survives; Foreign Stocks Quickly Recover; Has Fever Broken?
Foreign stock markets went for a wild ride in the first quarter, spooked by fears of a slowing U.S. economy and the ripple effects that a downturn could have globally. But most foreign markets steadied by the end of the quarter, leaving investors with some hope that the four-year overseas rally remains intact.</br></br>The pullback began the last week of February amid signs that loans to the least creditworthy U.S. borrowers, known as subprime loans, were deteriorating. Investors worried that delinquencies in this corner of the property market could spread to the broader housing sector, damping U.S. consumer appetites for foreign goods and commodities. Global markets suffered their biggest one-day selloff Feb. 27, with blue-chip indexes falling between 3% and 7%, after a nearly 9% drop in Shanghai's main stock index further unsettled nerves.</br></br>"It was a pretty turbulent period," said Shigeki Makino, a senior portfolio manager at Putnam Investments in Boston. "Concerns about risk came back to the fore, and people reined in their riskier bets pretty quickly."</br></br>The Dow Jones Stoxx Index, which measures the performance of major European companies, advanced 2.5% in the quarter, Tokyo's Nikkei Stock Average of 225 companies was ahead 0.4%, while Morgan Stanley's emerging-markets index edged up 1%. All did better than the Dow Jones Industrial Average's 0.9% decline.</br></br>But these return figures belied the price swings to start the year, and the sudden flight from riskier markets in late February. Latin America best exemplified the roller-coaster nature of the quarter. These stocks lost 5% during the first week of the year, bounced back 12% until Feb. 22, slid 12.5% during the next 10 days, then bounced back another 12% in the three weeks that followed.