From Briefing.com...(DAYTRADER) Surprised by the market's show of strength today in the face of Brazil's de facto devaluation? We were as well until Briefing.com looked back to the market's reaction to the Russian ruble devaluation. Going into the open on August 17, 1998, the S&P futures contract had fallen 10 points below "fair value" on news of ruble devaluation. However, Index futures rallied sharply off their lows and the market opened just slightly lower. Buyers materialized throughout the session, by the end of the day lifting the Dow 150 points, the Nasdaq 28 points and the S&P 21 points. With the Dow extending gains to close +140 the next day, it appeared that U.S. equity investors had completely discounted the Russian situation. But within two weeks of the devaluation, the U.S. equity market suffered two of the worst point losses in its history, as investors around the world began to consider the potential ramifications of the Russian devaluation (including loan defaults, flight of capital from lesser-developed-countries and increased currency speculation). On August 27 and August 31, the Dow plunged 357 and 512 points, respectively. While we are not pulling the fire alarm, we do believe that actions by Brazil will have further ramifications on the world's 8th-largest economy and cause collateral damage in other Latin American countries such as Argentina and Mexico, particularly if Brazil's revised currency band fails to hold. Hence, the move by Brazil is not already yesterday's news, as the rebound in U.S. equities today might suggest. These issues are likely to continue to plague world equity markets over the coming weeks.
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