(By Daniel Sckolnik) "The general who wins the battle makes many calculations in his temple before the battle is fought. The general who loses makes but few calculations beforehand. "– Sun Tzu
The cockiness that has been on display from Wall Street for much of the year seems to be on the wane.
For a while, specifically for the first three months of the year, investors seemed to shrug off any negative news, instead taking every opportunity to buy the dips and ride the trend. Sentiment seems to have shifted in April, however, and the skittishness that was the hallmark of the second half of 2011 has re-established itself, to a certain extent, as soon as the second quarter of the year came into being.
The Eurozone debt crisis has seemingly reasserted its prominence on the trading floor. The lull that was established, primarily due to the effects of the temporary banking liquidity solution provided by the European Central Bank's LTRO-1 and 2, has apparently dissipated. Instead, it has been replaced, as of last Friday, by the jolt of increased bond yields in the Eurozone's periphery markets. Specifically, Spain's 10-year bonds hit 5.93%, dangerously close to a level that is euphemistically referred to as "unsustainable."
Taken together with the fact that China has just demonstrated what many economists have already, that it is as susceptible to an economic slowdown as the rest of the planet, investors are rethinking their happy faces towards the equity markets. A first-quarter drop in the world's second largest economy from 8.9% to 8.1% GDP tends to have that sort of unsettling effect.
How did Wall Street handle this adversity? Not so well.
The Dow Jones Industrial Average (DJIA) lost 1.6% last week, its biggest fade in over three months. The S&P 500 Index (SPX), offering a better read on the market as it represents 500 companies as opposed to the 30 that compose the Dow, got dinged as well, to the tune of 2% on the week. Finally, the Nasdaq Composite (COMP) trumped them all, shedding a nasty 2.3%.
For the coming week, it will be telling to see how investors view the market. Will it be seen through the prism of an opportunity to cash in the chips on a profitable year to date, or a chance to buy the pullback?
One x-factor is China's decision to widen the yuan band. This apparent effort to enhance its currency's flexibility can be read in a variety of ways, covering the spectrum from a move to transparency all the way to the other side where suspicions lurk as to real motive of a government that has been notoriously unconcerned with accommodating the demands of its global trading partners.
If good news emerges from the next round of corporate earnings reports, the yuan announcement may simply get relegated to the back of the curio shop, at least for now. On the other hand, if more bad news comes out of the peripheral countries of the Eurozone, and U.S.