The growing devastation in Japan may accelerate the short-term negative sentiment in a U.S. equity market already seen as vulnerable, but ongoing weakness is likely to be confined to specific sectors.
The massive earthquake and tsunami in Japan are estimated to have killed 10,000 people and left officials scrambling to avoid meltdowns at three nuclear reactors.
The disaster hit commodities markets hard on Friday, and brought on a flurry of short bets against Japanese stocks.
The effects on the U.S. market are harder to determine. The S&P 500 fell below its 50-day moving average last week and support appears to be waning, despite a rally on Friday.
In the short term, investors are likely to focus on the ramifications for energy companies, particularly nuclear power. Japanese officials said there may have been a partial meltdown at the No. 1 reactor of a nuclear plant in Fukushima.
"The disaster could prove to be a setback for nuclear power as an alternative energy source," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "Whether or not we see a reaction in utilities and engineering and construction companies remains to be seen."
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