Will Emerging Markets Be Safe Haven?
Tuesday, August 31, 2010. 9:15 am.
In spite of Wall Street’s periodic advice when the U.S. economy or market are in trouble, to diversify into international holdings for safety, it is one economy globally, with countries large and small experiencing good times and recessions, bull markets and bear markets, pretty much in lockstep with each other.
In the last bear market, Wall Street’s compelling argument was that emerging markets were sure to be a safe haven, their economies strong and not endangered by bursting real estate bubbles, or overleveraged ‘too big to fail’ banks.
The same argument is being made now.
We would simply caution you that in spite of the assurances three years ago, emerging markets certainly did not escape the carnage of the 2007-2009 global market decline. In fact the declines in their smaller, illiquid stock markets were more severe than the declines in developed country markets. Typical was the emerging market etf shown, which plunged 67% in that bear.
Lest you think it was unique, the SPDR Emerging Markets fund plunged 65%. And note that they topped out in 2007, and bottomed in early March last year, in tandem with other global markets.
Gold Up, Stocks Down for August.
On this last day of August, it looks like gold, up 4.7% for the month so far, will have its biggest monthly gain since last April, in keeping with our latest gold buy signal.
Meanwhile, with the S&P 500 down 4.8% for the month so far, it looks like August will be the down month we told you to expect, and in fact will be the worst August since 2001.
Yesterday in the U.S. Market.
Not pretty at all – well, for the bullish side anyway. A steady decline throughout the day, and closing on its low for the day.
Yesterday’s intraday chart:
The Dow closed down 140 points, or 1.4%. The S&P 500 closed down 1.2%. The NYSE Composite closed down 1.5%. The Nasdaq closed down 1.6%. The Russell 2000, almost always more volatile in both directions, closed down 2.4%. The DJ Transportation Avg. closed down 1.8%.
Of the ‘safe havens’, the U.S. dollar closed up, but only 0.3%. Treasury bonds closed up 1.9% after plunging 2.8% on Friday. Gold closed down $1 an ounce, or 0.1%.
Yesterday in European Markets.
European markets closed down. London was closed for a holiday. The German DAX closed down 0.7%, and France’s CAC closed down 0.6%.
Asian Markets Were Back to The Downside Last Night.
Japan led Asian markets back to the downside, Japan closing down a big 3.6% at a new 16-month low, while Hong Kong closed down 1% for the 7th down day out of the last 8.
The DJ Asia-Pacific Index closed down 1.7%.
Among individual markets:
Australia closed down 1.0%. China closed down 0.5%. Hong Kong closed down 1.0%. India closed down 0.3%. Indonesia closed down 0.6%. Japan closed down 3.6%. New Zealand closed unchanged. Singapore closed down 0.2%. South Korea closed down 1.0%. Taiwan closed down 1.6%.
Markets This Morning.
European markets are down this morning. London FTSE is down 0.9%. The German DAX is down 0.9%. France’s CAC is down 1.0%.
Oil is down $.47 a barrel at $74.23.
Gold is up $7 an ounce at $1,246.
Markets in the U.S.
This week has a very heavy schedule of potential market-moving economic reports, including Consumer Confidence, the minutes of the Fed’s last FOMC meeting, the ISM Mfg Index, Factory Orders, the ADP Jobs report for August, Pending Home Sales, and culminating on Friday with The Big One, the Labor Department’s important Monthly Employment Report for August. To see the full schedule of the week’s reports click here, and look at the left side of the page it takes you to.
Yesterday’s report was Consumer Income and Spending for July, which showed incomes were up only 0.2% in July, but spending was up 0.4%, and the savings rate declined.
This morning’s first report was the Case-Shiller Home Price Index, which showed that single family home prices rose 1.0% in June from May, the third monthly increase after six straight months of declines, and was better than expectations.
Still to come today are the Chicago Purchasing Managers Index, due out at 9:45 am, Consumer Confidence at 10 am, and the minutes of the Fed’s last FOMC meeting at 2 pm.
Pre-Open Indicators:
The pre-open indicators have been negative all morning, not encouraged by falling global markets and the string of important economic reports ahead for the next few days.
Our pre-open indicators are pointing to the Dow being down 30 points or so in the early going.
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