Investors went running for the exits on Tuesday with some analysts worried that we may be looking at the perfect financial storm.
Storm #1: Europe
As you may know, part of the bearish sentiment stemmed from a market rumor suggesting Spain might soon follow Greece and ask the EU for a massive bailout – to the tune of for 280 billion euros.
Spanish Prime Minister Jose Luis Rodriguez Zapatero denied the claims calling the chatter "complete madness."
Nonetheless, investors dumped stocks worried that problems in Europe were far from solved; the euro tumbled to a one-year low against the dollar.
Storm #2: China
But, as you may not know,partof the bearish sentiment in the market also stemmed from Beijing’s decision to raise banks' reserve requirements to fend off inflation. It’s the third such increase in China this year.
“All sectors (in China) are under pressure," says Zheng Weigang, analyst at Shanghai Securities with bank and real estate stocks leading the plunge.
As a result the Shanghai Composite, China's key stock index, fell 1.2% on Tuesday to its lowest close in seven months.
What does it all mean?
If you watch Fast Money regularly, you may remember that Miller Tabak strategist Peter Bookvar has expressed concerns that investors can’t withstand a one, two punch from both China and Europe.
Investors didn’t want to buy umbrellas despite the gathering storm clouds, he says.
A lot of US investors think it’s all about the US and everything else can take care of itself but in a globalized world that’s not the case, Boockvar adds.
Europe is China’s biggest trading partner and internally China is trying to slow down. China’s slower growth impacts Taiwan, Singapore and South Korea. They export to China who then exports to Europe. We’re all in this together.
What do you think? We want to know!
What’s the trade?
I’d look at a long position gold , counsels Joe Terranova.
I think there’s still time to short US companies that are exposed to Europe or China, says Brian Kelly.
The following list was compiled by S&P and shows the top 5 US firms with sales generated in Europe between 2003 – 2008.
These may be the companies that could feel the most pain next earnings season, reminds Fast Money host Melissa Lee, due to the weaker euro.
Company *% Sales From
**Schering-Plough 48%
Flowserve 47%
Paccar 47%
Owens-Illinois 44%
Pall Corp 43%
Source: S&P
*Sales between 2003-2008
** Schering-Plough was acquired by Merck
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Trader disclosure: On May 4, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Najarian Owns (PFE); Najarian Owns (GS) Calls; Najarian Owns (MS); Najarian Owns (C) Calls; Najarian Owns (SFD) Calls; Najarian Owns (TEVA); Adami Owns (AGU), (C), (INTC), (GS), (NUE), (MSFT), (BTU); Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (USO); Finerman's Firm Is Long S&P Puts; Finerman Owns (AAPL); Finerman's Firm Owns (AEO), (ARM); Finerman Owns (BAC), (BAC) Preferred; Finerman's Firm Owns (BAC), (BAC) Calls; Finerman's Firm And Finerman Own (CVS); Finerman's Firm And Finerman Own (JPM); Finerman's Firm And Finerman Own (RIG), (RIG) Calls; Finerman's Firm Owns (WFC) Preferred; Terranova Owns (PFE), (SWN), (XCO), (TER); Terranova Owns (C) May Calls; Terranova Is Long Gold June 2010 Futures; Terranova Is Short (CMA); Edwards Owns (VXX); Kelly Owns (FXE) Puts; Kelly Owns (FXB) Puts; Cortes Is Long Treasuries; Cortes Is Long U.S. Dollar; Nations Owns (SPY)
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