Although the last two days of selling after the election have brought US equities down to their lowest levels since July, a lot of the blame for the sell-off has been put on Europe. While we have certainly seen an increase in headlines coming out of Europe since the election, one would expect to see an increase in sovereign debt spreads along with the drop in equity prices.
With that in mind, the charts below show the current spreads between 10-year sovereign spreads of Italy, France, Spain, and Greece relative to Germany. As shown in the charts, while spreads have increased in the last couple of weeks, they are still below the levels they were at as recently as late September, so the sell-off in US equities would seem a little excessive based on the lack of a big move higher in spreads.
Furthermore, if Europe was the real issue behind the sell-off on Wednesday and Thursday, one would expect to have seen a larger sell-off in Europe than we did in the United States. However, just looking at the performance of ETFs that track each region, the MSCI Europe ETF (VGK) fell 2.82% from Tuesday's close through Thursday. The S&P 500 tracking ETF, however, fell 3.5% over the same time period. Wouldn't you think that if the root cause behind Wednesday and Thursday's sell-off was news coming out of Europe, that Europe would have been down more?
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