Asian stocks fall after six-day streak of gains

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Asian shares declined on Friday, as optimism over China rescue measures fades and investors parse weak results from Intel Corp.

Shares in mainland China and Hong Kong dropped after the biggest three-day rally in Hong Kong and China equities since 2022, on bets the latest efforts from Beijing will support the economy and backstop stock markets. Japan’s Nikkei index dropped about 1.5% as Korea’s gained. US equity futures retreated Friday after Intel delivered a disappointing forecast, while Europe’s advanced.

Morgan Stanley cut its targets for major China stock indexes, saying the country’s challenges with debt, demographics and deflation are among hurdles to further equity gains.

“China’s drag risks — economic, financial and currency — certainly factor in,” said Vishnu Varathan, chief economist for Asia ex-Japan at Mizuho, in an email Friday. “Political uncertainty, and attendant policy continuity risks, in Asia may be undergoing some re-evaluation,” he added, saying “Indonesia may be facing Cabinet stumbles. India has the shadow of religious divisions despite being the economic bright spot.”

Inflation in Tokyo cooled below 2% for the first time in more than a year and a half, a sharper-than-forecast deceleration as the Bank of Japan mulls the strength of price growth and the timing of a widely expected interest hike.

That result “is likely to make the Bank of Japan think twice about ending negative rates sooner than later,” according to Taro Kimura, an economist at Bloomberg Intelligence, in a report.

BOJ board members deepened their discussions last month over the timing of an exit from the world’s last negative interest rate, according to minutes of the December policy meeting that may fuel market expectations of a move in March or April.

Markets in Australia and India are closed for holidays.

Wall Street traders pushed stocks to another all-time high in a sixth straight day of gains as the economy remains resilient. The latest US gross domestic product data defied forecasts for a recession, bolstering the outlook for Corporate America. A closely watched measure of underlying inflation was in line with the Federal Reserve’s 2% target, seen by many as an encouraging signal.

“The numbers are definitely encouraging for a soft landing for this year,” Alex Wolf, head of Asia investment strategy at JPMorgan Private Bank, said in an interview on Bloomberg Television. “That positive earnings growth that we will like to likely to see — especially across the board — can continue to drive equities a bit higher,” he added.

The S&P 500 closed near 4,900 and US 10-year yields slid 6 basis points to 4.12%. Swap contracts continued to fully price in a Fed interest-rate cut in May, while boosting bets on total cuts this year to around 140 basis points.

The dizzying equity rally has been fueled by falling inflation and the possibility that the Fed will cut rates in 2024. It has already blown past the Wall Street consensus over where the index will finish the year. On Wednesday, the gauge surpassed 4,867, the average level where forecasters in a Bloomberg survey pegged it 11 months from now.

With the US stock market at a record, the question for many investors right now is how much firepower is left in the rally that began last year. Whenever the S&P 500 has climbed from a bear market to new heights, returns in the subsequent six and 12 months have been handily above average, Bloomberg Intelligence data going back to 1950 showed.

BI’s analysis of market performance after the US stock benchmark hit a fresh high found the median forward six-month return was roughly 9.2%, above the median 6.3% return for all half-year periods going back more than 70 years. The same pattern is seen in forward 12-month performance, with median returns at 15% after a new all-time high versus just 13% in overlapping yearlong time frames.

Elsewhere, oil rose to the highest in about two months as US inventories, Chinese stimulus and an attack on a Russian refinery ignited a rush of trend-following algorithmic buying.