Understanding The Market Drop

The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is trading at $155.46, -0.42 (-0.27%). The low of the day was $154.20 as the markets have bounced well off their lows. So why did the markets fall today? Additionally, why have they recovered so nicely?

The Trigger: News

As part of a bailout deal reached with the EU, Cyprus committed to taxing deposits in its banks up to 9.9% for accounts over 100,000 and 6% for all accounts under. This means, all those savers who stashed cash (rich or poor) and were not wild spenders will pay dearly.

Why It Is A Big Deal?

Bank Runs: If you knew your money in the bank was going to be taxed at 10%, wouldn’t you go remove it immediately and store it under your mattress? I would and so might many in European countries like Cyprus, Greece, Italy, Spain. This is the fear. If Cyprus is setting a precedence, bank runs could begin. Many in Cyrus have already gone to the ATM’s and withdrawn as much as they can. Mass bank runs would send Europe into a catastrophic collapse.

Why The U.S. Markets Are Recovering?

Poor banking conditions in Europe and fear of a tax on deposits will only encourage money to be transferred into the United States banking system. More money into the U.S. is not a short term negative, but a positive. Some of this money flow will even find its way into the Dow Jones Industrial Average, S&P 500 and NASDAQ. In addition, any short term hurt to the global outlook is another reason the Federal Reserve will stick around longer, printing money.

Related: SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) and PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ).

About Gareth Soloway 168 Articles

Affiliation: InTheMoneyStocks.com

Gareth Soloway has been an avid swing and day trader since his days at Binghamton University where he studied Economics. After college, Gareth quickly excelled as a financial advisor, helping clients get their financial houses in order. While helping others gain financial independence, he continued to study the day trading and swing trading world, developing a unique market philosophy and proprietary methods. Following his work in the financial sector, Gareth went on to trade alongside professional traders. Unable to tolerate the hype of Wall Street any longer and having an amazing ability to profit using his developed techniques, Gareth Soloway decided to partner with his friend and colleague, Nicholas Santiago to form InTheMoneyStocks.com. Chief Market Strategist Gareth Soloway serves as the president and CFO of InTheMoneyStocks.Com.

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