GLOBAL MARKETS PLUNGE ON CREDIT FEARS -- COMMODITIES ALSO FALL ALONG WITH THE EURO -- THE ONLY WINNERS WERE BONDS, THE DOLLAR, GOLD, AND THE YEN -- STOCKS MAKE BACK HALF OF DAY'S LOSSES IN THE AFTERNOON

BONDS, GOLD, THE DOLLAR, AND YEN BENEFIT... First the good news. With global stocks and commodities falling sharply today, there were only a few markets that actually made money. Treasury bonds and notes rose as yields tumbled (Chart 1). The U.S. Dollar Index also gained ground as foreign currencies like the Euro fell to new yearly lows (Chart 2). The only foreign currency that did rise was the Japanese yen which has become a safe haven play (Chart 3). The yen rose sharply against the dollar and the Euro. Although most commodities fell today, gold attracted a safe haven bid (Chart 4). That was it. Everything else tumbled. The freezing up of global credit conditions and increased fear of a global recession pushed global stocks into one of the biggest loss in years. Foreign stocks did worse than the U.S. Foreign developed markets fell -7% while emerging markets lost -9%. Commodity producers like Brazil and Russia lost -13% and -18% respectively. An ugly day all around.

Chart 1

Chart 2

Chart 3

Chart 4

THE EURO AND COMMODITIES TUMBLE ... The rise in the dollar isn't due to any strength in the U.S. It's due to more weakness everywhere else in the world as the financial crisis has spread abroad. Tbat's especially true in Europe. As a result, the Euro tumbled again today to the lowest level in a near. Chart 5 shows the Euro testing its early 2005 peak at 135. Fears of a global recession continue to hammer commodity markets. The DB Commodities ETF (DBC) also fell to a new yearly low today (Chart 6). Crude closed below $90 for the first time in eight months. That's why commodity producers like Brazil and Russia were hit so hard today. So were energy and basic material stocks which saw the biggest losses.

Chart 5

Chart 6

OCTOBER OFF TO A BAD START ... October has a history of market crashes in the first half of the month that often lead to bottoms in the second half. So far, the month is living up to the first part of its reputation. Let's hope it lives up to the second part. As bad as today's market drop was, the good news is that stocks made back half of their earlier losses by the close. The 1-minute bars show afternoon rebounds in the S&P 500 (Chart 7), the Dow (Chart 8), and the Nasdaq (Chart 9). That's small comfort but does suggest that the earlier selling was overdone. One of our contributing writers over the weekend pointed out that Monday is usually the worst day of the week. Let's hope so. Foreign markets, which closed earlier than ours, may regain come composure tomorrow as well.

Chart 7

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Chart 9

VIX BACKS OFF FROM RECORD HIGH ... The CBOE Volatility (VIX) Index hit a 28-year high today before giving most of it back. The 1-minute bar in Chart 10 shows the VIX dropping from 58 to 51 in afternoon trading. That took place as stocks rallied. That may lead to a better opening tomorrow and and more stable trading day. As painful as today's trading was, it does seem to fit the historical pattern of October selloffs. And it may be a necessary part of the process in a possible October bounce.

Chart 10