As Japan crashed last night, the U.S futures dropped sharply. A situation which was already ugly in Japan, turned down right nasty as radiation spewed into the atmosphere. When the Japanese stock market closed, it had lost 11% of its value. The U.S. markets opened sharply lower, the SPDR S&P 500 ETF (NYSE:SPY) opening at $126.59, a loss of 2.66%. While this pails in comparison to Japan, it is still the largest gap lower on the markets in months if not years. Interestingly enough, all commodities including gold, silver and oil tumbled.
The reasoning behind the massive dump is simple. A fragile global economy cannot take massive shocks. Even this situation in Japan, could cause a ripple effect that may create defaults in far off places like Europe. Last week alone, Europe was on shaky ground as Spain had their debt downgraded. Even in the United States, the Federal Reserve is meeting today and will release their policy statement at 2:15pm ET. After talk of ending QE2 early, Wall Street can be assured that is now off the table. A distant dream of QE3 is now much more of a reality. This Federal Reserve statement will be key.
Oil dropped sharply today ignoring any Middle East tensions. The main reason for the drop today was due to the perception and reality that demand for oil from Japan will likely drop drastically in the coming months as their economy shudders. In addition, any effect on the global economy will also keep demand of oil in check in the near term.
Solar stocks continue to move higher. This was the obvious trade on a nuclear meltdown. As nuclear energy looks more and more dangerous, demand for alternate energy spikes. First Solar, Inc. (NASDAQ:FSLR) is higher again today, trading at $153.80, +6.89 (+4.69%). FSLR was trading on the daily 200 moving average just three days ago at $137.00. Truly a remarkable move.
Aside from the alternate energy arena, the carnage on Wall Street is widespread. From the banking sector to technology, stock prices are deep in the red. Goldman Sachs Group, Inc. (NYSE:GS) finds itself trading at $156.39, -2.04 (-1.29%) while technology player Intel Corporation (NASDAQ:INTC) is trading at $20.11, -0.73 (-3.50%).
The key will be how bad this nuclear catastrophe gets in Japan. Right now, it appears things are priced for Armageddon. Should the radiation start declining, the markets may see a bounce. With Japan down 11% and much of Europe down 5%, the U.S. markets are showing strength just down 2%. It appears the markets are looking towards Ben Bernanke for help. Will he print trillions more?