Market melancholia

After half an hour of trading on Tuesday, the stock market is having its worst day in several months, with the S&P 500 down more than 16 points, or about 1.2 percent. The Dow Jones Industrial Average is down just over 140 points, and the Nasdaq 100 down about 29 points, each about 1.1 percent.

In the "nothing is safe" category, gold is down almost $30/ounce with every other commodity I watch except for natural gas also down on the day. Economically sensitive materials, such as oil and copper are getting hit hard, with the latter being down more than 2.5 percent. Copper is considered one of the most economically sensitive commodities.

In addition to many people thinking the market is "due" for a correction, it is primarily overseas news driving today's pessimism. There is fear that the Greek bond swap (in which current bondholders swap their bonds for new bonds with roughly half the nominal value) may not go smoothly. A European organization suggested that a disorderly default could cost 1 trillion euros in financial damage. Meanwhile, Europe's GDP shrank in the last quarter, making the EU appear to be on the bring of a second recession in three years. China lowered its growth estimate yesterday from 8 percent to 7.5 percent. China is Brazil's largest trading partner. This, combined with recent strength in Brazil's currency, has damaged Brazil's economic growth which was reported at a 2.7% GDP growth rate, down from 7.5 percent in 2010.

In our global economy, slowing in major developing markets bodes very poorly for our economy as well, particulary for commodity and heavy industry companies, such as miners and machinery companies. For example, copper and gold producer Freeport-McMoran (FCX) is down nearly 4 percent today while Caterpillar is down more than 3 percent.

The US economy is in modestly better shape than many other places, but we will not escape at least a modest sniffle if most of the rest of the world catches cold.

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