Market declines as bond yields soar

Yahoo Finance's Jared Blikre and Akiko Fujita discuss Goldman Sachs's S&P 500 year-end target, market swings, foreign exchange, and bond yields.

Video transcript

AKIKO FUJITA: Big, big moves in those yields there, leading to a broad-based selloff here in the equity space. The recent moves prompting Goldman Sachs to cut its year end target for the S&P 500 from 4,300 to 3,600. As part of its reasoning, Goldman Sachs says the interest rate path is now higher than it had originally forecast. For a closer look at all the market action today, we've got Yahoo Finance's Jared Blikre here with me. And Jared, you're also watching currencies.

JARED BLIKRE: Yes, and we're going to get to those in a second. The British pound racing towards parity with the US dollar, just as the euro did a month or two ago. But let's go to the YFi Interactive, where I'm charting the price action in the S&P 500. This is a six-month chart, and we are racing towards those lows that we saw in June.

So basically, we are looking at a situation where we are potentially heading to new yearly lows. And if you take a look at the Dow, the Dow is already there. In fact, it has taken out those June lows. Let's see if I can get that up there. It looks like there's a little bit of lag, but that's good enough for government purposes.

Also checking in on the US dollar, now this has been racing, racing higher. And it's been placing a lot of stress on global currency markets. And I have a little graphic here I prepared writing this up today. And you can see at the very top there, we have the Argentine peso, all right? Now that has been devalued about 40% versus the US dollar, along with the Turkish lira. The Turkish lira gets a lot of press because they are actually cutting rates, the opposite of just about every other central bank out there.

But then you go down. So after the peso, after the lira, then it's the yen. This is a problem because the yen is a much bigger currency, the third or second most heavily traded currency in the world. I believe it's the third. Then the Swedish kronor, then the British pound. These are developed market currencies. Usually, you do not see 15%, 20%, 25% moves in these currencies.

You start getting these kinds of exacerbated moves with highly leveraged instruments, and then you see an unwind. Think of the flash crash. Think of some of that Lehman moment. In the global financial crisis, it was really about corporate debt and banks. And now we have the opposite situation where it's sovereign. So sovereign debt reared its ugly head later after the GFC 2011, 2012. That's when we had the Euro crisis of confidence. That's when Mario Draghi, head of the ECB, had to say, we'll do anything that it takes.

Is it going to come to that? You and I have been talking about possible more intervention by the BOJ. By the way, that hasn't done much. The yen has come back. And it's actually a little bit weaker today after that big strengthening move yesterday. So all of this looks to be a little bit too little, too late. And I think we're still going to see a lot of fallout.

AKIKO FUJITA: Yeah, and with the yen, we're talking about a developed market currency. These are often EM currency swings--

JARED BLIKRE: I know.

AKIKO FUJITA: --that we see. Obviously, for EM, it means more debt, more expensive.

JARED BLIKRE: Yes.