Equities reversed direction today after reaching a more than five year high on Friday. All three of the major equity averages saw their worst losses of the year with the Nasdaq down 1.51%, 47,93 points to 3131.17, the S&P 500 off 17.46 points to 1,495.71,1.15% and the Dow 0.93% lower, 129.71 points to 13,880.08.
Concerns centered on Spain were Prime Minister Mariano Rajoy is embroiled in a payoff scandal, accused by his political opponents of accepting illegal funds, and Italy where former President Silvio Berlusconi is closing the with Pier Luigi Bersani’s left-leaning Democrats and the new centrist alliance led by Mario Monti, the former unelected President in the February 24th and 25th election.
Mr. Berlusconi's surge is undermining political expectations for a coalition government between the Democrats and Mr. Monti that would prolong his economic reforms. With all parties likely to receive far less than a majority, any coalition could be fragile and perhaps unable or unwilling to continue the reforms necessary for the long-term success of the Italian economy and viewed by the credit markets and the ECB as essential.
The Italian economy has contracted for five straight quarters beginning in the third quarter of 2011. The fourth quarter of 2012 is also forecast to be negative when it is reported on February 14th. Most international economists expect Italy's GDP to contract 1.0% or more this year. Italian unemployment was 11.2% in December a 13 year high, according to Eurostat, the European Union statistical agency.
The yield on Spanish 10-year government debt climbed 23 basis points to 5.44 percent today. Yields on similar Italian notes rose 14 basis points to 4.47 percent.
Chief Market Strategist