The start of a correction?

North American markets were hammered today by a variety of bad news.  The S&P 500 dropped 24.91 points or 1.9% to 1,295.11, while the Dow fell 228.48 points or 1.9% to 11,984.61.  The S&P 500 fell by the largest amount in 2 weeks.  In Canada, the TSX fell 1.8% to 13,638.58.

Euro zone troubles mounting

There was no shortage of bad news today.  Moody's cut its rating on Spain by 1 notch, stating that it believes the cost to recapitalize the country's banks will exceed the government's estimate of €20-billion.  Yesterday, 2-year bonds auctioned by the Portuguese government yielded 5.993%, which was a record high.  In addition, the yield on 10-year Portuguese government bonds stood at 7.6%, close to the record high.

Weak US data

Today, it was also reported that US initial jobless claims rose 26,000 last week to 397,000.  In addition, the US trade deficit increased in January to $46.3 billion, which was more than expected.  China also posted a trade deficit today, which surprised many.

Middle East turmoil continues

Fighting also intensified in Libya today, as government and rebel forces continued to battle.  There was also concern about Saudi Arabia, as reports emerged of protests in the country.


A correction is likely


With the S&P 500 having rallied about 25% from its September level, markets are clearly out of steam.  In fact, North American markets had been trading sideways in recent weeks, and have started heading lower this week.  The combination of high oil prices due to unrest in the Middle East and a resurgence of an euro debt crisis is clearly proving enough to push markets lower.  In fact, investors can expect to see an official correction ahead.  I have previously written on this blog that I expect a correction of 10-15% in the first quarter.  We could very well be at the beginning of that.