We are facing a significantly negative open, with renewed fears about Spain’s need for a bailout and their skyrocketing borrowing costs. Rumors have been flying all weekend that Spain will need to ask for a large bailout after two Spanish provinces asked the central government for bailouts this weekend. More regional governments are expected to ask for bailouts shortly, while the Spanish economy contracted by 0.4% in the second quarter, adding even more negative pressure on the government and its ability to finance ongoing operations.
Asian and European markets were sharply lower overnight, and we are set to open down by about 130 points on the Dow, 14 points on the S&P 500, and 30 points on the NASDAQ. Asia markets were down hard, with Hong Kong suffering a 3% decline and Japan off almost 2%. France, Germany and the UK are off roughly 2% across the board, while Spain is down 3.7% and Italy is off 4%.
It is going to be a rough day. However, we are currently (before the open) up about 7.6% from the low of the correction, ending Friday’s session at 1,362 on the S&P 500. Although I invested some of the cash balances I had raised, back into the market very near the lows of the correction – around 1,275 – I maintained significant cash balances in the event that the market corrected down further. We bounced, which provided a nice jump in performance for my clients during the second quarter. If we trade above 1,400 I will trim positions. If we decline to around 1,200 I will put more cash to work. Between those two levels I am content to wait and see how things develop. As always, I remain flexible, and will alter my strategy if needed, depending on the economy and financial market developments around the globe.