U.S. equity markets plunged sharply lower on Tuesday as investors liquidated stocks from the get go, triggered by negative sentiment out of Asia and Europe. Besides the outlook for a weaker U.S. economy, global investors reacted to reports that growth in China was slowing. The Leading Economic Index for China rose 0.3% in April. This was less than the 1.7% reported June 15th.
Coupled with the fear that China’s growth is not likely to accelerate and should grow moderately at best, are early trader reaction to the call for a decline in U.S. jobs on Friday, and speculation regarding the results of the European bank stress tests. The combination of all of these factors has created fear and this fear is expected to pressure equities while driving up Treasury Bonds and Treasury Notes.
A greater than expected drop in U.S. consumer confidence also weighed on investor risk sentiment. The Obama administration with its Keynesian view of the economy needs the consumer to start spending. The loss of job security and the constant weakness in home values is putting fear into the consumer who is choosing to sit in cash or postpone his spending until the economy becomes more stable.