Sunday, March 20, 2011

Markets tumble on Japan nuclear crisis

US markets rose on Friday, after a ceasefire was announced by the Libyan government, and the G7 pushed the yen down 3%. The S&P 500 rose 5.49 points or 0.43% to 1,279.21, while the Dow added 83.93 points or 0.71% to 11,858.52. The US government also allowed banks to raise their dividends, which sent banks' shares higher on Friday.

For the week, the S&P 500 was down 1.9%, while the Dow dropped 1.5%. This was due to markets responding to the earthquake, tsunami and nuclear meltdown in Japan. Since the earthquake struck Japan shortly before markets closed on Friday, North American markets were hammered by the country's developments from Monday to Wednesday. On Tuesday, the Dow fell as much as 300 points at one point.

US housing disappoints

On Wednesday, it was announced that US housing starts dropped in February by 22.5%, to an annual rate of 479,000. It was the biggest decline since March 1984. Meanwhile, building permits fell 8.2% to an annual rate of 517,000, the worst performance in about 40 years. It was another blow to the US housing sector, which is still trying to find a bottom after the financial crisis.

Looking ahead to next week

The nuclear crisis in Japan is showing signs of stabilizing, with engineers attaching power cables to the generators. However, the situation is not resolved, with a possible outcome being sealing the reactor within concrete and sand.

The bombing of Gaddafi's forces by several nations will likely add uncertainty to markets. Meanwhile, fighting continues in Bahrain, with neighbouring countries such as Saudi Arabia having sent police officers and soldiers to help Bahrain crush the protesters. The euro zone is another worry, with Portugal having been downgraded this week.

Last Sunday, I wrote that “Thus, with the many negative factors coming up next week and the weeks ahead, I expect a correction of 10 to 15% within the next month.” North American markets ended up almost having that correction in one week, with a correction of about 8% this week. However, with so many negative factors still in play, investors should expect markets to continue heading lower next week.

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