US stocks slide as global fears hit

US stocks slide as global fears hit
November 17, 2010

US stocks fell nearly 2 per cent on Tuesday as the prospect of more European bailouts and worries China will rein in inflation prompted investors to abandon risky assets.

The developments, especially questions about Ireland's financial stability, caused a spike in the US dollar, which hit commodity prices. That in turn sent equities lower, with natural resources companies leading the way down.

What you need to know

The SPI was 67 points lower at 4646
The $A was down at 97.66 US cents
The Reuters Jefferies CRB Index was down 3.2%

"Is (US) dollar strength just a correction in a larger trend of dollar weakness, or are we beginning to turn around here?" said Bill Strazzullo, partner and chief investment strategist at Bell Curve Trading in Boston.

"If it looks like the US dollar is finally stabilising here and gaining its footing, we're going to have a good-sized pullback in equities and commodities markets."

Asset classes have become increasingly entwined since investors placed bets ahead of the Federal Reserve's announcement of further quantitative easing. Now, many investors that bet on Fed stimulus are unwinding those risky positions.

One result was a slide in resource stocks, such as Alcoa Inc, which fell 2.8 per cent to $US13.03, and Exxon Mobil Corp, which dropped 2.2 per cent to $US68.94. US crude oil futures settled 3 per cent lower at $US82.34 a barrel, gold and metal prices fell and the US dollar index jumped 0.9 per cent.

The S&P materials sector gave up 2.2 per cent. Tech shares also stumbled, falling 1.9 per cent, as investors fled for safety.

The Dow Jones industrial average dropped 178.47 points, or 1.59 per cent, to 11,023.50. The Standard & Poor's 500 Index shed 19.41 points, or 1.62 per cent, to 1178.34. The Nasdaq Composite Index gave up 43.98 points, or 1.75 per cent, at 2469.84.

Ireland, which is grappling with a battered banking sector, said it was discussing stabilization measures with its European partners, while China is expected to unveil food price controls and crack down on commodity speculation to contain inflationary pressure.

The Chinese media reports increased expectations that China will further tighten monetary policy to help fight inflation.

The S&P found support around the 1176 level, which is roughly the 23.6 per cent Fibonacci retracement of the benchmark's recent rally from the 2010 low in July to its more than two-year high hit earlier this month.

After rallying nearly 13 per cent through September and October, the S&P 500 has given up nearly 4 per cent since November 5.

"If we don't see the S&P back above 1200 in the next couple days, then I think we're potentially putting in some sort of top here," said Strazzullo.

Continued speculation over whether the Federal Reserve will spend all of the $US600 billion it had earmarked for its latest round of quantitative easing also pressured the market.

St. Louis Fed President James Bullard said in an interview with Bloomberg Radio the central bank would scale down its planned purchases of Treasury bonds only if there was a strong improvement in the US economy.

Global developments overshadowed a favorable US corporate picture as Wal-Mart Stores Inc and Home Depot Inc raised their profit forecasts for the year.

The two companies were the only Dow stocks to rise. Wal-Mart added 0.6 per cent to $US54.26 after it also forecast positive same-store sales for the holiday season, and Home Depot rose 1 per cent to $US31.71, though it cut its full-year sales outlook.

Reuters

http://www.watoday.com.au/business/markets/us-stocks-slide-as-global-fears-hit-20101117-17w7w.html