Commodities' drop curbs risk appetite

Updated: 2011-05-09 10:33


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NEW YORK – US stock investors head into this week with added worries about the sustainability of the recent rally and a desire to reduce risk, as shown by the stampede out of commodities on Thursday.

Stocks also will begin to lose the support they have enjoyed from stronger-than-expected earnings, with the first-quarter reporting period nearing an end.

The drop in commodities last week spilled over into commodity-related stocks, which were among the top performers in the last two quarters.

The Standard & Poor's energy index (.GSPE) ended the week down 7 percent, its biggest weekly drop in a year, and the iShares Silver Trust (SLV.P) suffered its worst week of outflows ever after heavy losses in the precious metal.

While the commodities rout may be done for now, it has left many investors worried about the ramifications.

"It's hard to pinpoint the time when the bubble bursts and hard to go against the current, but when it bursts it's precipitous usually," said Natalie Trunow, senior vice president and chief investment officer of equities at Calvert Investment Management Inc in Bethesda, Maryland, which manages about $14.8 billion in assets.

With first-quarter earnings and the Federal Reserve's QE2 purchasing program coming to an end, the stock market could be vulnerable to some weakness in the short term, she said.

"I wouldn't be surprised if we had a somewhat softer summer or somewhat softer next couple of months," said Trunow, who added she was still positive on the US market longer-term.

Last week, the S&P 500 (.SPX) suffered its worst week since March, even with Friday's surprisingly strong jobs report that allowed the index to end a four-day losing streak.

It is now just above critical support at 1,330. A close below that level could "turn the intermediate-term picture bearish," according to a note from Larry McMillan, president of McMillan Analysis Corp.


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