Stocks, ETFs Chilled By Cyprus On Monday

U.S. stocks and ETFs fell sharply on Monday, along with financial markets around the world, in response to the weekend announcement of a proposed tax on bank deposits in the tiny Mediterranean country of Cyprus.

U.S. stocks and ETFs mostly declined as the Dow Jones Industrial Average (DIA) fell 62 points, 0.43% while the S&P 500 (SPY) shed 0.55%. The Nasdaq 100 (QQQ) dropped 0.25% and the Russell 2000 (IWM) gave up 0.55%.

All the fuss started with a weekend announcement that Cyprus had reached a deal with the European Union to get more bailout funds but that the deal included a tax on deposits held in the country’s banks. The news was met with stiff resistance from citizens in the country as well as from global financial markets.

Gold ETFs gained with SPDR Gold Trust (GLD) climbing 0.84% to close at $1633/oz. while most major stock indexes in Europe and Asia declined in response to the news. The Eurodollar (FXE) declined 0.94% to $129.54.

In a nutshell, Cyprus agreed to a 10 billion Eurodollar infusion from the European Union but only on the condition that the country’s bank depositors pony up a percentage of assets on deposits to help save their respective banks. The announcement triggered a bank run in the country and now the situation is becoming more murky as the vote in Parliament to approve the deal has been postponed due to apparently not having the required votes for passage. Citizens continue to protest and some discussion is taking place about what the amount of the “haircut” will be and who is to pay it. Banks in Cyprus are now scheduled to remain closed until Thursday.

In economic reports at home, the home builders index declined to 44 in March from the previous month’s 46 and missed expectations.

Tomorrow brings economic reports regarding housing starts and global investors will continue to carefully watch the situation unfold in Europe.

Bottom line: The European debt crisis flared into view again after several months of calm. While Cyprus, itself, is of little concern to the global financial community, the prospect of contagion and the notion that individuals might have to participate in sovereign bailouts adds new uncertainty and stress to the situation. How events unfold over the next few days will be crucial for global markets and related stocks and ETFs.

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