By David Berman
Wakey wakey! Tuesday’s stock market slide might be shaking investors from a months-long slumber, not because it is particularly severe but because it stands in such shocking contrast to the mild moves in 2012.
In midday trading, the S&P 500 was down 1.5 per cent. That’s the biggest one-day downturn since early December and it is about double the dip of the second biggest downturn, on February 10. Then, the S&P 500 fell just 0.69 per cent, barely rattling the windows.
But the stock market isn’t the only area that’s standing out. The CBOE volatility index shot 13 per cent higher, reflecting nervousness on the part of investors. That’s the biggest percentage gain in the so-called fear index since November. However, it must be said that at a level of just 20.45, up 2.45 points, it is rising from a low base. Consider that the index spiked above 45 as recently as October, when Europe looked as though it was imploding.
Gold also stands out – not as a haven investment but as a casualty in the downturn. Gold was down 2.1 per cent on Tuesday, marking its second biggest decline since November. It fell far harder last week, but that seemed largely due to Federal Reserve chairman Ben Bernanke’s refusal to dangle the prospect of economic stimulus in his Congressional testimony. This slide is following stocks.
And, lastly, behold the U.S. 10-year Treasury bond, which remains the go-to haven investment. The yield, which moves in the opposite direction to price, fell to 1.933 per cent, down 7.8 basis points (there are 100 basis points in a percentage point). That’s the biggest drop in 2012 and pushes the yield deeper beneath the 2 per cent threshold.
The bond has been meandering around this 2 per cent threshold since early September, even as the S&P 500 has risen 14.5 per cent over the same period – suggesting that the stock market and the bond market can’t seem to agree on the economic backdrop. Well, until Tuesday.