Courtesy of John Nyaradi.
Indexes and Index ETFs to Europe: No Spain, No Gain
Indexes and Index ETFs continued their plunge today in response to Fed action (or lack thereof), Spain troubles, and an overall market correction. The S&P 500 lost 1.02% and the SPDR S&P 500 ETF (NYSEARCA:SPY) lost .99%; the DJIA lost .95% and the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) lost .88%; the Nasdaq 100 lost 1.46% while the PowerShares QQQ Trust Series 1 ETF (NASDAQ:QQQ) lost -1.36%, and the Russell 2000 Index lost 1.73% while the iShares Russell 2000 Index ETF (NYSEARCA:IWM) lost 1.60%.
Just what happened in Spain? Spain (NYSEARCA:EWP) sold 2.59 billion Euros worth of debt at yields of an astonishing 5.5%, a three month high for the country. Germany also reported negative factory orders and Europe reported a retail spending decline as well, so all in all I would say the European continent is struggling this week. Read more about Europe’s woes here.
Couple European problems with a lack of more free money from the Fed and an overall market correction, and we have ourselves a nice and pretty and painful 1% sell off for major US markets.
Today was definitely a day of No Spain, No Gain, but are Spain (NYSEARCA:EWP) and the Fed the leading factors of decline or are we simply in the middle of a vast market correction? Probably a mix of all three, as markets typically react to Europea and Fed intervention, positive or negative. US markets however, have been vastly immune to European woes since the beginning of the New Year, as witnessed by the enormous bull market. Therefore, I would assert that today’s market action is not driven by European problems alone but rather is driven by a strong combination of an overall correction, European woes, and of course, Dr. Ben’s empty punchbowl.
That being said, after witnessing the last few years of Dr. Ben’s easing and the party that usually accompanies free money, today’s market downfall could be simply a reaction to no more Fed juice. Since the FOMC minutes came Tuesday after Monday’s heroic day in the green, perhaps markets really are simply Fed driven.
Today’s relatively positive ADP Employment report and a mixed ISM Non-Manufacturing report probably were just drops in the bucket of today’s loss, as neither report was positive enough to stop the onslaught.
Bottom Line: European woes, a broken Fed punchbowl, and a general market correction plagued US indexes and Index ETFs today. I think as long as Europe continues to act up and as long as investors feel they need Fed intervention to survive, my outlook is likely to be very bearish indeed. Like I said, no Spain, no Gain.
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