An uncertain path forward for post-election Greece put the spotlight back on Europe’s debt crisis, sending global stock markets lower and commodities sliding in a massive risk off trade.
Gold fell, cracking key technical zones, as investors headed into cash and safer assets. Silver and copper both fell about 2 percent. Oil prices continued under pressure, adding to the selloff that has taken West Texas Intermediate crude about 8 percent lower in five sessions.
The Dow saw triple digit lossesearlier in the day, but reversed the worse of its losses to end the day down 76 points at 12,931. The S&P 500 broke through a key technical zone around 1360, but also made a comeback, finishing the day at 1363, down 5 points. The dollar, meanwhile, held its ground, as the euro temporarily dropped below the key 1.30 level.
“We’re going to have higher tensions, more uncertainty and most likely a weaker euro,” said Mark McCormick, currency strategist at Brown Brothers Harriman.
The fresh concerns about Europe feed fears that that the global economy is slowing down, at the same time China is experiencing softer growth and the U.S. economy is making uneven progress. Buyers sought the safety of U.S. Treasurys, driving the 10-year yield as low as 1.81 percent.
Greece, on the weekend, voted in hard left and hard right candidates, reducing the presence of its two main parties. The result has been a tumultuous effort to form a new government.
First, the New Democracy party failed to organize a new coalition government, leaving the leftist candidate Alexis Tsipras as the second party to try to form a government. Tsipras Tuesday repeated his election call to reject the international bailout, causing New Democracy leader Antonis Samaras to say he would not support a coalition on that basis.
Greece’s ASE composite index fell 3.6 percent, to its lowest level since November, 1992, as speculation swirled the country would leave the euro zone. Meanwhile, Spain also rattled investors after reports that the country was prepared to bailout its fourth largest bank Bankia S.A. Markets have also had concerns about the election of leftist Francois Hollande to the presidency of France. Hollande had campaigned on an anti-austerity platform.
“If we get positive news, it’s a rally you want to sell into. What we’re looking for is Greece to form a government in the next couple of days. And if not, we’re going to have more uncertainty until June as we wait for another election,” said McCormick.
U.S. stocks were led lower by losses in the consumer discretionary, energy and materials sectors, all groups that depend on stronger global growth. Energy shares followed the decline in oil prices.
“The internals of the stock market are deteriorating and are on the verge of a more aggressive move lower, and internals always lead the price action,” said Jordan Kotick, Barclays Capital global head of technical strategy.
Kotick pointed to the “sell in May” type of seasonal declines in 2010 and 2011, where stocks made their highs in April. He said the seasonal pattern could be repeated. The decline was 17 percent in 2010, and 21 percent in 2011, he added.
“We’re only down five percent, so there’s still room here. I’m not saying we’re going down 21 percent…but this is not done,” he said.
“Consistent with the seasonal corrective period we’re in, we’re not done on the downside but not apocalyptically bearish either. We’re still bearish into the summer before we look for a base and a bid to return in the summer months,” Kotick said.
Analysts see the 1340 level on the S&P 500 as the next key technical level to watch.
“We’re trading today under 1360, which was a soft level of technical support, which means 1340 comes into play. I would start to be a buyer at 1340 . If we fall through there, the next level would be 1300, where I’d be an aggressive buyer,” said Mark Luschini, chief investment strategist at Janney Montgomery.