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While you were sleeping: Equities move lower

Wednesday 31st December 2014

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Stocks in Europe and on Wall Street slid, pushing the S&P 500 down from Tuesday’s record-high close, as some investors sought to lock in profits before the end of a solid year. 

While mildly short of expectations, the latest data on US home prices and consumer confidence underpinned optimism about the outlook. A report showed that the annual pace of increases in US home prices slowed again in October. The S&P/Case-Shiller index of property values climbed 4.5 percent in the year ended October, after increasing 4.8 percent in the year ended in September.

“As you look forward, we’re considering a housing market that should be a more normal housing market, which means driven by the pace of income and other aspects of affordability,” Michelle Meyer, a senior US economist at Bank of America in New York, told Bloomberg News. “Price appreciation should slow to fall more in line with the growth in income.”

Indeed, the year ahead might look more rosy for home values. 

“After a long period when home prices rose, but at a slower pace with each passing month, we are seeing hints that prices could end 2014 on a strong note and accelerate into 2015,” David Blitzer, chairman of the index committee at S&P Dow Jones Indices, said in a statement.

Meanwhile, consumers gained some confidence too, even as it was a little less than economists had expected. The Conference Board, an industry group, said its index of consumer attitudes rose to 92.6 in December, from an upwardly revised 91.0 in November.

“Consumer confidence rebounded modestly in December, propelled by a considerably more favourable assessment of current economic and labour market conditions," Lynn Franco, director of economic indicators at The Conference Board, said in a statement. "Consumers were moderately less optimistic about the short-term outlook in December, but even so, they are more confident at year-end than they were at the beginning of the year.”

Wall Street moved lower though both the Dow and the S&P 500 are trading near record highs.

In afternoon trading in New York, the Dow Jones Industrial Average fell 0.34 percent, the Standard & Poor’s 500 Index declined 0.33 percent, while the Nasdaq Composite Index shed 0.41 percent.

“The US economy is doing well,” Herbert Perus, head of equities at Raiffeisen Capital Management in Vienna, told Bloomberg News. “Some stocks seem overpriced, but if you look deeper into the market you find a lot of good managed companies with good products that are still not expensive.”

Slides in shares of Caterpillar and those of General Electric, down 1.2 percent and 0.9 percent, led the Dow lower.

"I still like equities, but we’re at a point where valuations are no longer really cheap," James Liu, global market strategist for JPMorgan Funds in Chicago, told Reuters. “I don’t see much that looks inexpensive.”

In Europe, the Stoxx 600 Index ended the session with a 0.9 percent decline from the previous close. Germany’s DAX Index dropped 1.2 percent, the UK’s FTSE 100 Index fell 1.3 percent, while France’s CAC 40 Index sank 1.7 percent. Greece’s ASE Index closed 0.5 percent lower.

“The concerns about Greece and the euro zone, the price of oil, and the [US Federal Reserve] hiking rates are not critical, but they do add up,” Luca Paolini, chief strategist at Pictet Asset Management, told Bloomberg News.

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