(Recasts; rewrites top with additional details on Japan, adds
By Caroline Valetkevitch
NEW YORK, March 13 The growing devastation in
Japan may accelerate the short-term negative sentiment in a
U.S. equity market already seen as vulnerable, but ongoing
weakness is likely to be confined to specific sectors.
The massive earthquake and tsunami in Japan are estimated
to have killed 10,000 people and left officials scrambling to
avoid meltdowns at three nuclear reactors. [ID:nL3E7EC0D6]
The disaster hit commodities markets hard on Friday, and
brought on a flurry of short bets against Japanese stocks.
The effects on the U.S. market are harder to determine.
The S&P 500 fell below its 50-day moving average last week and
support appears to be waning, despite a rally on Friday.
In the short term, investors are likely to focus on the
ramifications for energy companies, particularly nuclear power.
Japanese officials said there may have been a partial meltdown
at the No. 1 reactor of a nuclear plant in Fukushima.
"The disaster could prove to be a setback for nuclear power
as an alternative energy source," said Jack Ablin, chief
investment officer at Harris Private Bank in Chicago. "Whether
or not we see a reaction in utilities and engineering and
construction companies remains to be seen."
Ablin, however, did not foresee a notable reaction in the
broader U.S. market.
Nuclear-powered countries may reexamine expansion efforts
or expend more on safety and security at plants. President
Barack Obama has been a supporter of an expanded nuclear energy
program, but that will be called into question now.
In February, the White House asked for $36 billion in
federal loan guarantees to help finance the building of nuclear
power plants, as it did last year, which would double what the
loan program already has in authority. [ID:nN14290604]
"Nuclear loses in the near term. Conventional oil, natural
gas, and coal are the winners," David Kotok, chief investment
officer at Cumberland Advisors in Sarasota, Florida, wrote in a
Nuclear energy stocks have received a boost following
yearly budget proposals from President Obama. The Van Eck
Market Vectors Nuclear Energy exchange-traded fund (NLR.P) hit
a 52-week high on Feb. 8, rising 7 percent in the two weeks
after Obama's 2011 State of the Union address.
The quake triggered an increase in risk aversion, with
nervous Japanese liquidating investments overseas and bringing
capital back to yen-denominated assets.
The dollar fell 1.2 percent to 81.87 yen JPY=EBS on
Friday, while shares of the CurrencyShares Japanese Yen Trust
(FXY.P) rose 1.3 percent to $120.62. The yen may come under
pressure, however, if the reconstruction worsens the country's
already-heavy debt burden.
OIL, MIDDLE EAST STILL WEIGH
Investors are also still grappling with political protests
in the world's top oil exporter, Saudi Arabia.
The market's recent weakness revived talk a correction is
near, analysts said, even though stocks recovered from early
losses on Friday to finish the day higher with the Dow back
above 12,000 and the S&P 500 above 1,300.
Stocks have rallied sharply since the start of September,
with the S&P 500 up 24 percent for that period, but faltered in
the last two weeks. At Friday's close, the Standard & Poor's
500 Index .SPX was down 1.3 percent for the week.
"Oil prices were already moving higher before unrest in the
Mideast, and if we do have something that is pronounced in
Saudi Arabia -- and I don't think that's a high probability --
but if we do, the cards are off the table as far as where
prices could go," said Thomas Villalta, portfolio manager for
Jones Villalta Asset Management in Austin, Texas.
"The impact from that is, I think you've got a chance for
Protests in Saudi Arabia were more muted than some had
anticipated on Friday. Concerns arose that planned "Day of
Rage" protests in the country could lead to further instability
in the Middle East and North Africa. [ID:nLDE72A0BR]
INFLATION AND THE FED
The jump in crude oil prices to 2-1/2-year highs has raised
anxiety about their dampening effect on the economy.
Given those concerns, investors will be tuned into any
comments on energy from the Federal Reserve when it releases a
statement on Tuesday afternoon following its policy meeting.
The U.S. central bank is unlikely to hint at policy changes
this week, and is expected to keep interest rates near zero.
For the week, the Dow Jones industrial average .DJI fell
1 percent, the S&P 500 slid 1.3 percent and the Nasdaq .IXIC
lost 2.5 percent.
Besides a break below the 50-day moving average earlier
this week, the S&P 500 fell below a long-standing trendline,
suggesting the benchmark index has lost momentum and that the
recent rally may be losing steam.
S&P falling below technical levels:
S&P 500 and sector trading ranges:
"That behavior tells you demand has weakened, which puts
odds on further downside in the near term," said Chris Burba,
short-term market technician at Standard & Poor's in New York.
If the S&P 500 falls below 1,275, the next support area is
1,227 to 1,177, he said.
(Wall St Week Ahead runs every Sunday. Questions or comments
on this column can be e-mailed to:
(Reporting by Caroline Valetkevitch; Additional reporting by
Doris Frankel in Chicago and David Gaffen in New York; Editing
by Dale Hudson)