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Spain ETF Plunges To Nine-Year Low; Grains Smashed

A generic image of a person with a calculator and a paper with a chart on it.
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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 Tuesday.

IShares MSCI Spain Index ( EWP ) plunged 4.66% to a nine-year low.PowerShares DB US Dollar Index Bullish ( UUP ) 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 ( EFA ), 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 ( EEM ) fell 0.75%.

Weather Forecasts Dampens Commodities

IPath DJ-UBS Grains ETN ( JJG ) 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 year.

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.

Market Overview

In afternoon trade, theSPDR S&P 500 (SPY) skidded 1.26%.

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 energy prices.

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.

Follow Trang Ho on Twitter @TrangHoETFs .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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