Well, it looks like it’s going to be a clustermunch on the markets tomorrow in reaction to the S&P downgrade of the U.S. credit rating.
If the Asian markets are any indication, the U.S. stock market is going to take a bath Monday. The Asian markets plunged Monday with China taking the biggest hit as Hong Kong’s Hang Seng Index sank 3.9%. Japan’s Nikkei fell 2.2%, Austrailia sank 2.9% and South Korea tumbled 3.8%. Monday’s declines have pushed most of the Asian markets into bear territory with a 20% drop from recent highs.
Meanwhile, the U.S. futures have already hit the fan. Futures on the Dow Jones Industrial Average fell 2% on Sunday, while the Nasdaq futures skidded 2.3%. Ironically, U.S. Treasurys, the U.S. debt instrument that for all intents and purposes was the recipient of the downgrade, actually saw its yield fall a few basis points to 2.53%. It’s the exact opposite reaction one would expect after a downgrade.
I can’t imagine it’s going to stop on Monday. Nor can I see much reason to keep holding stocks, especially, if you’ve made a profit over the past two years. The ProShares and Direxion inverse ETFs can provide a way to capitalize on the expected mayhem, but be careful, if the market does bounce, you could get caught with your pants down.