TOCKS held firm near recent five-month highs yesterday as investors awaited key bond market tests for Europe in the next two days that could determine the direction of the Eurozone crisis.
US equities have been performing better in the face of turmoil from Europe’s sovereign debt problems. This is a major change from four months ago and comes as investors have taken improving US economic data to heart and an optimistic view about corporate earnings.
Wall Street recovered from early losses yesterday brought on by a warning from Fitch Ratings of severe repercussions, including a possible collapse of the euro, without more supportive action by the European Central Bank.
The Fitch news sent the euro to its lowest level in 16 months against the US dollar, which would normally have spelled steeper losses for stocks.
“The US is being looked at clearly as the safe-haven trade, not only on the fixed income side but now even from equity investors,” said Ken Polcari, managing director at ICAP Equities in New York.
“We keep talking about the same stuff, but it’s been that way for eight, nine months ... I hate to say it, but it’s almost like people are immune to it now.”
The benchmark S&P 500 index recovered to close little changed to continue the recent decoupling of US stocks and the movement of the embattled euro.
The Dow Jones industrial average slipped 13.02 points, or 0.1 per cent, to 12,449.45. The Standard & Poor’s 500 Index gained 0.4 point, or 0.03 per cent, to 1,292.48. The Nasdaq Composite Index gained 8.26 points, or 0.31 per cent, to 2,710.76.
Key bond auctions later this week from Italy and Spain, two of the larger countries at the center of the Eurozone crisis, could hurt sentiment if they go poorly.
Materials shares moved higher, boosted by US Steel Corp, up 4.7 per cent to $28.56, after Credit Suisse upgraded fellow metals company AK Steel to an “outperform” rating. The S&P materials sector gained one per cent.
Further reflecting the weakening link between the Eurozone and US stock market, the 50-day correlation between the S&P 500 e-mini futures contract and the euro crossed the zero line this week after four months of being in positive territory, indicating they were no longer on the same path.