Spanish stocks led a global sell-off for a third straight day
as Spain's borrowing costs rose to a fresh high. That sent the
euro to a two-year low against the dollar. Yields on Spain's
10-year bonds reached a new euro-era high of 7.57% on
IShares MSCI Spain Index (
) plunged 4.66% to a nine-year low.PowerShares DB US Dollar Index
) rose 0.49% to its highest level in a year and a half. It tracks
the greenback against a basket of the most widely-traded
currencies.IShares MSCI EAFE Index (
), tracking developed foreign markets, tumbled 1.52%, close to
its 52-week low.
Investments denominated in U.S. dollars suffered a double
whammy from falling valuations and a strengthening greenback.
"While recent soft U.S. economic data now has financial
markets increasingly discounting QE3 (quantitative easing)
year-end, this hasn't been enough to reverse the buck's gains,"
Alec Young, global equity strategist at S&P Capital IQ, wrote
in a client note this morning. "And with Spain's recession
worsening as austerity fuels 25% unemployment, increasing
property price declines and loan delinquencies, the troubled
nations' debt woes aren't likely to ease, keeping (Spanish bond)
yields high and the euro weak."
IShares MSCI Emerging Markets Index (
) fell 0.75%.
Weather Forecasts Dampens Commodities
IPath DJ-UBS Grains ETN (
) gapped down 4% on profit taking. Forecasts of rain this week in
northern U.S. Midwest corn and soybean areas dampened worries
about the U.S. drought. U.S. corn and soybean futures fell to
their daily trading limits on Tuesday. JJG, a note tracking
soybeans, corn, wheat, and other agricultural commodities, has
rallied an eye-popping 36% in the past two months as scorching
weather destroyed crops, driving up prices.
Meanwhile government crop reports showed corn and soybean are
at their worst conditions since the drought of 1988 but the
deterioration rate is easing. Only 26% of the corn crop was rated
in good or excellent condition as of July 22, down from 31% a
week earlier, the U.S. Department of Agriculture reported. About
a third of corn was rated in very poor or poor condition. About
31% of soybeans was rated high, down from 34%. On average 79% of
corn and 77% of soybeans are rated good to excellent this time of
The drought trade is beginning to unwind in the overbought
grain markets, said Shawn Hackett, president of Hackett Financial
Advisors, who specializes in analyzing commodities.
In afternoon trade, theSPDR S&P 500 (SPY) skidded
As of June's end, the benchmark was trading at a 13.7
price-to-earnings ratio, a level seen at the bottom of the bear
markets in 1966 and 1968, noted RegentAlantic Capital in an
investment outlook released Tuesday. Among the past 10 market
cycles, the market entered a bear market only once -- in the
1980s -- at this valuation or lower. The recovery from that bear
market took less than three months. RegentAtlantic concludes the
market's downside risk may be limited at current levels and that
the U.S. will likely see slow growth with the benefit of lower
Risk of the economy faltering has already been priced into the
markets, says Bob Doll, a senior advisor to BlackRock.
"But we are not expecting to see a significant upside breakout
unless and until more policy clarity emerges," Doll wrote in a
weekly investment commentary. "There is still room for additional
policy easing around the world given weak growth levels and low
levels of inflation. Equities do generally benefit during times
of policy reflation, but they do so in a volatile fashion given
the associated backdrop of economic concern."
SPDR Dow Jones Industrial Average (DIA) dropped
1.34%.PowerShares QQQ (QQQ), a basket of the largest 100
nonfinancial stocks on the Nasdaq, gave back 0.90%.
DIA has broken below its 50-day moving average. SPY and QQQ
poked below their lines as the afternoon advanced. The 50-day
moving is a key level watched by technical analysts.
Jtrader.us advised its clients to buyiShares Russell 2000
Index (IWM) Tuesday morning with the belief that the market is
finding support at current levels.
"We are prepared to hold this trade at least until Apple
(AAPL) announces earnings tonight and possibly into tomorrow,"
said the firm's co-founder, Janice Dorn.
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