A Merrill Lynch stock-market gauge with a perfect record reportedly has just flashed a red warning light.
Bank of America Merrill Lynch advised clients Friday that it was time to "sell," amid a session that saw the Dow industrials lose 450 points in early trading, CNBC reported.
“Stock-focused funds took in $25.7 billion over the past week ended Wednesday, adding to worries that sentiment has become overheated,” CNBC explained.
The firm's strategists say overheated bullishness tripped its "sell" indicator Tuesday, in the early stages of what has been a rough week.
To be sure, the S&P and the Dow were headed for their worst week in two years on Friday, as robust U.S. jobs data pushed up bond yields further and boosted chances of more interest rate hikes this year, Reuters explained.
The Dow Jones Industrial Average dropped more than 400 points, with 10 of the 11 major S&P sectors in the red, led by the energy index’s 3.49 percent fall.
Nonfarm payrolls rose by 200,000 jobs in January, the Labor Department said, beating expectation of 180,000. Average hourly earnings rose and boosted the year-on-year increase to 2.9 percent, the largest rise since June 2009.
After the data, benchmark 10-year Treasury yields extended their rise to more than 2.8 percent, while traders boosted bets that the U.S. Federal Reserve will raise interest rates three times this year.
Fast-rising wages could prompt more aggressive action from the central bank to keep a lid on inflation pressure.
“The big picture concern is that wage growth will pick up and lead to more inflation,” said Nicholas Colas, co-founder at DataTrek Research.
The rise in bond yields “is certainly beginning to concern the markets. It is certainly now an issue, where it wasn’t for all of last year. Rates have risen fairly quickly this year and the speed of the advance is worrying.”
(Newsmax wire services contributed to this report).
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