Market Talk

Investors today appeared to be having some second thoughts about Fed’s QE2 plan, as everything that rose in anticipation of the asset-buying program — stocks, Treasurys, the euro, oil, gold and a host of other commodities — retreat sharply. In fact, it was the theme all week.

Re-emergence of Euro-zone debt concerns, and some worries today about China moving to a tighter monetary stance are enough to turn some focus squarely back to fundamental factors. Oil, gold, Treasurys all hammered today, 10-yr note reaching highest yield in nearly two months.

Materials, financials and energy the hardest hit stock sectors. DJIA falls 90.52 to 11192.58, ends week down 2.2%. Nasdaq Comp falls 37.31 to 2518.21, and S&P 500 sheds 14.33 to 1199.21.

It’s the biggest weekly point and percentage drop for the major indexes since week ended August 13, and leaves stocks with a skinny gain for November.

Busy week for data coming up, featuring regional manufacturing reports from NY and Philly Feds; October retail sales; CPI, PPI; industrial production & capacity utilization; and housing starts.

One thing’s fairly obvious in this broad stock-market selloff today — every asset that’s benefited from a strong bid courtesy of QE2 expectations is getting hit…hard.

Metals, oil, Treasurys, stocks and the euro all tanking, after a near vertical run-up since the Fed first began to telegraph its easing intentions at the end of the summer. Maybe this selling will end as a bout of short-term profit taking. Perhaps it turns into a well-deserved correction, a consolidation of gains reaped since September. Or could it be something more? At some point, the traders who’ve piled into risky assets at the Fed’s behest will decide the easy money has been made. Time to cash out and go elsewhere. Maybe we’re near that time.

It’s been a rocky week for the Fed’s latest monetary easing plan. Outside of Wall Street, QE2 has been savaged by nearly everyone, raising questions about a program that seems hard to defend. In addition, turmoil in Europe appeared to be under wraps when the QE2 trade really began to catch on, and the latest troubles with Ireland and others in the periphery presents a big fly in the ointment. If gains in the euro — a key beneficiary of the QE2 trade — come undone, so will much of the stock-market rally since September.

We suggested Tuesday there may be some cracks forming in the QE2 trade. It’s become crowded, and we may be seeing the least-committed heading for the exit. Certainly no panic evident in today’s action. But there is a whiff of smoke.

Bears are aiming for some follow-through to yesterday’s sell-off in US stock markets. Asian markets fell sharply overnight, with concerns about interest-rate hikes in China being cited as the catalyst, and European markets are edging lower as sovereign debt concerns — particularly in Ireland — continue to fester.

Interesting complexion premarket, with recent correlations — both positive and negative — appearing to loosen a bit . Euro recovering from big drop overnight, USD index softening, oil and gold in retreat (even as
the dollar eases) and Treasurys a shade lower.

Only data on tap is Reuters/Univ of Michigan prelim Nov consumer sentiment gauge, out at 9:55am ET. S&P futures down 9.30; 10-yr note down slightly, yield at 2.66%.