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Year-end bounce shaping up like a bust

The Dow is down 3.4% in what is usually the stock market's best two-month period of the year. As the 'super committee' fails, many investors are merely seeking a place to preserve capital.

November 22, 2011|By Tom Petruno, Los Angeles Times

Wall Street seems to be giving up hope for a year-end bounce in stocks.

Investors signaled a lack of faith in markets nearly across the board Monday as equities and commodities fell on unrelenting fears about the global economy and financial system.

The Dow Jones industrial average closed with a loss of 248.85 points, or 2.1%, at 11,547.31, nearly a five-week low. The Dow now is back in the red year to date, off 0.3%.

The tone was set at the outset after it appeared that the congressional "super committee" on deficit reduction would fail to reach an agreement by Congress' Wednesday deadline. The committee confirmed after markets closed that no deal had been reached.

Given Europe's financial crisis, the committee's stalemate was viewed as another sign of developed-world governments' inability or unwillingness to deal with their spiraling debt loads.

Historically, November and December have been the U.S. stock market's best two-month period of the year. But the Dow is down 3.4% this month, and analysts said it's getting more difficult to imagine what might bring buyers back.

"There is just no good news," said Dave Rovelli, head of equity trading at brokerage Canaccord Adams in New York.

He said some of the selling in stocks Monday stemmed from fear that the U.S. could soon face another downgrade of its bond rating. Shares worldwide plunged in August after Standard & Poor's cut the U.S. to AA+ from AAA.

But after markets closed, S&P said that it has no plans to further cut its rating on U.S. debt soon, despite the super committee's failure.

Later in the day, Moody's Investors Service affirmed its Aaa rating on U.S. debt, although it kept a "negative" outlook.  Moody's had previously said that a failure by the super committee would not be a "decisive" factor in its rating assessment.

In Europe, stocks fell sharply as Spanish government bond yields jumped. Voters' decision to throw out Spain's Socialist government failed to make investors feel more confident about holding the nation's debt. The 10-year Spanish bond yield rose to a new euro-era high of 6.55% from 6.38% on Friday.

The Eurozone's debt crisis has engulfed Spain, Italy and France in recent weeks as worries about the countries' ability to pay their debts has driven up yields on government bonds. Each uptick in yields makes it more expensive for the countries to roll over maturing debt.

Investors also were unnerved by the German Bundesbank's new forecast of a steep slowdown in the German economy in 2012.

Germany's stock market fell 3.4% and the Spanish market lost 3.5%. The Italian market dropped 4.7% to a seven-week low.

Emerging-market stocks also were broadly lower, a sign of concern about the global economy's prospects in the new year. Russia's Micex stock index sank 4.8%, its biggest one-day drop since early October.

Stocks fell 2.6% in India, 3.2% in Turkey and 2.2% in South Africa.

Prices of most commodities fell on economic jitters, and as some investors and traders sold what they could to raise cash. Oil fell for a third day, down 75 cents to $96.92 a barrel. Gold futures slid $46.40 to $1,678.30 an ounce, a four-week low.

Gold's inability to keep its recent rebound alive has surprised some traders. The metal slid to $1,594 in late September, then rallied to just under $1,800 by Nov. 8 before sliding again.

Monday's decline in the face of another stock sell-off is disappointing investors who bought the metal as a haven, said Matt Zeman, a commodities strategist at Kingsview Financial in Chicago. It reinforces that "there is nowhere to go," he said.

The day's only real winner: Treasury securities, as some investors stashed cash in something they still believe will repay them in full, despite the lack of a deal to pare the deficit. Treasury bond yields were lower across the board.

"Clients are telling us that preservation of capital is their primary concern," said Bruce Bittles, investment strategist at brokerage Robert W. Baird & Co.

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