The S&P 500 Drops Below 1,580

The stock market is retreating again today. The S&P 500 is currently just below 1,580. The big news today is of course out of the gold pits.

For the last six months, gold has been slowly sliding. In October, it was close to $1,800 per ounce. Two weeks ago, it was down to $1,600, but the big plunge started on Friday when gold dropped from $1,560 to $1,480. Today’s fall may be even larger.

What’s the reason for gold’s big fall? The reason comes down to real short-term interest rates. The farther interest rates are below inflation, the better it is for gold. The higher they are above inflation, the worse it is.

The dramatic shift in gold over Friday and today most likely signals to us that traders think the Fed will raise rates sooner than expected. Interestingly, while most stock sectors are down today, the financials are down the least. JPMorgan ($JPM) and Wells Fargo ($WFC) are up a bit. The big losers are the commodity stocks—materials and energy. Halliburton ($HAL) is down 4% and Freeport-McMoRan ($FCX) is off by 6%. Many of the big banks are higher. Citigroup ($C) is up about 3% thanks to a good earnings report.

I wouldn’t say this is a big turn against cyclicals, but it’s a turn against commodity-based cyclicals. Many of the heavy-industry stocks are down basically inline with the broader market. Treasury bonds continue to hold up well, and have laughed off any notion that there’s going to be a Great Rotation out of bonds. If anything, the rotation has been out of commodities.

Posted by on April 15th, 2013 at 10:31 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.