That was a bad break yesterday. The S&P 500 dropped 32 points, or 2.89%, to 1099.23. That’s a new closing low for the year, breaking below the previous 2011 low of 1119 on August 8. That increases the likelihood that last year’s low of 1022 on July 2 will be retested. There are many stock markets around the world that have already dropped below their 2010 lows and seem to be heading towards retests of the lows of the previous global bear market in early 2009:
(1) European bourses plunged without any hesitation through their 2010 lows during August as investors concluded that the July 21 rescue plan was badly flawed. The MSCI Europe stock price index is down 17.5% since then, led by a 26.2% drop in Germany’s DAX. The major European indexes are getting closer to their March 2009 lows: Germany (46.6% above), France (16.2), Italy (16.0), and Spain (17.7).
(2) Among the major EM stock indexes, the following are trading below their 2010 lows: Hong Kong, Taiwan, and Israel. Currently retesting their 2010 lows are China, South Korea, India, and Russia.
(3) Financial stocks are also rapidly heading towards their previous bear market lows in early 2009. The FTSE Eurofirst 300 Banks Euro Index is down 33.6% ytd, and only 47.8% above its March 9, 2009 bottom. In the US, S&P 500 Other Diversified Financial Services and Investment Banking & Brokerage are down 46.3% and 47.4% ytd, respectively. The former is 76.8% and the latter is 34.3% above their respective previous bear market lows.
European markets have been slammed by concerns that the failure of European leaders to clean up the Euro-Mess will cause a recession over there. That scenario would be bad news for emerging economies that export goods and commodities to Europe. The S&P 500 has held up relatively better since early August because consensus earnings estimates have remained resilient. That may be starting to change.