Markets are trying to kick the junk habit

For a while now, solid fundamentals have been considered somewhat optional for global investors.

US junk bonds, emerging market bonds, stocks in economically challenged European countries, and bonds issued by their heavily indebted governments all havehad their day in the sun.

But this week, investors seemed to decide enough was enough.

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Amid an ugly political backdrop—Gaza unrest, ISIL’s Iraqi campaign, Russia’s continuing fun and games in Ukraine—investors started sweeping their money out of high-risk markets.

Stock markets in the countries at the heart of the European economic slump, which had been surging this year, slid hard. Greek stocks were pummeled this week, tumbling 10%. Italy and Spain also suffered, falling 5.7% and 3.9%, respectively. Money flowed into the safety of German government bonds, pushing the yields down to all-time lows.

The turn away from risk even seemed to touch some of the highest-flying performers in the global markets this year. Coffee and hog prices fell sharply. (Vietnamese coffee farmers seemed to be selling off their reserves to lock major price gains, which put downward pressure on prices. Meanwhile fatter pigs have been been helping to offset the smaller herds decimated by disease.)

The US escaped most of the ugliness, with the S&P 500 rising 0.3% this week. But there have been signs of risk aversion even there, such as a record $7.1 billion outflow of cash from the junk bond mutual funds and ETFs market in the week that ended Wednesday.

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