Don’t Go Bottom Fishing Across the Pond

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Stocks fell again Thursday, but a deep decline at the opening bell was partially offset by a steady recovery in the afternoon. At the closing bell, the Dow Jones Industrial Average was down 0.5% and the S&P 500 was off just 0.3%, after being down twice as much earlier in the day.

The rush to sell was due to a sharp sell-off in Europe where German automakers suffered severe losses. BMW led the way down with a 5.2% loss, but Volkswagen was up slightly after a four-day pummeling and the resignation of its CEO. The German DAX and France’s CAC 40 both fell almost 2%.

Buyers rushed in to purchase traditional “safe havens.” Gold futures rose 2%, closing at $1,153.80 an ounce. The benchmark 10-year Treasury note rose pushing its yield down to 2.125% from 2.144% Wednesday.

Crude oil rose 1% to $44.91 a barrel, which was attributed to falling U.S. oil supplies.

Weekly jobless claims increased to 267,000 in the week ended Sept. 19, but the good news was that analysts had expected an increase to 275,000. New home sales rose 5.7% in August, above expectations and the highest level since early 2008.

At Thursday’s close, the Dow Jones Industrial Average was off 79 points at 16,201, the S&P 500 fell 7 points at 1,921, the Nasdaq was down 18 points at 4,734, and the Russell 2000 lost 3 points at 1,138.

The NYSE Composite’s major exchange saw higher-than-normal volume with over 1 billion shares traded and total volume of over 4 billion shares. The Nasdaq crossed almost 2 billion shares. On the Big Board, decliners led advancers by 1.5-to-1, and on the Nasdaq, decliners led 1.2-to-1.

FEZ Chart
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Chart Key

The Euro Stoxx 50, and its corresponding ETF, SPDR Euro Stoxx 50 ETF (FEZ), have felt the bite of a bear market since October.

FEZ represents Europe’s blue-chip stocks including Sanofi SA (ADR) (SNY), Bayer AG (ADR) (BAYRY), Total SA (ADR) (TOT), Banco Santander, S.A. (ADR) (SAN), Anheuser Busch Inbev SA (ADR) (BUD) and Daimler AG (DDAIF).

EWG Chart
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iShares MSCI Germany Index Fund (ETF) (EWG), which represents stocks traded on the Frankfurt Stock Exchange, is doing no better than FEZ. This ETF includes large-, mid- and small-cap companies. The recent gap down has resulted from the VW scandal, but despite that crisis, negative volume is less than in August.

Conclusion

Two key European ETFs have plunged to their lowest points in over two years, extending the channel down indefinitely. The European economic crisis, along with a very different crisis in China, should be expected to have a more negative impact on our markets. But the Europeans are far more advanced into this mess than we are on this side of the pond.

Perhaps the recent VW scandal will wash out the weak hands, thus forming a bottom. But with no hint of that yet, we should stand aside from Europe’s finest equities until there is evidence of a bottom to what is a very deep well of red ink.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.


Article printed from InvestorPlace Media, https://investorplace.com/2015/09/daily-market-outlook-dont-go-bottom-fishing-across-the-pond/.

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