By Greg Peel

The Dow closed down 138 points, or 0.9%, while the S&P lost 1.4% to 1552 as the Nasdaq tumbled 1.8%.

Since at least the beginning of this year, many have called Wall Street overblown. Yet still stock prices have kept rising, to the point where the Dow well exceeded and the S&P 500 just pipped the all-time highs set in 2007. Any slip has since been met with a rush of buying, any possible pullback quickly arrested.

Not everyone was convinced, pointing to leadership sectors being defensives rather than cyclicals, pointing to a lack of real volume supporting upside moves, and pointing to the Fed's "free money" not really flowing into the wider economy. If fresh all-time highs were to be substantiated, there would have to be macro and micro data improvements to underscore valuations.

Wall Street largely weathered the Cyprus debacle, but the mood changed on Monday following the disappointing Chinese GDP release. Stock and commodity prices, embellished by carry trade flows, tumbled. The Boston bombing threw a new fear into the picture, but on Tuesday that fear was mostly dismissed. But as solid as the bounce on Tuesday proved, last night appeared to be another session in which, on a more general basis, it had become apparent to many that the Emperor has been wearing no clothes.

A rumour flew around the European bourses last night that a ratings agency was about to downgrade Germany. The rumour proved true, accept that it was little known agency Egan-Jones, which downgraded to A from A+ and placed Germany on a negative watch citing sovereign exposure to domestic banks. Meanwhile, the Bundesbank president suggested in an interview that the ECB might cut its cash rate shortly if data warranted, but that one cut would not turn around the eurozone's economic fortunes. That, he said, would likely take a decade.

The German stock market fell 2.3%, France followed suit, and London dropped 1%.

Yesterday, the IMF downgraded its 2013 global growth forecast to 3.3% from January's 3.5%, and lowered China specifically to 8.0% from 8.1%. The IMF is typically six months behind the curve ? at least ? but that doesn't stop their forecasts having an impact. This week most economists have downgraded their China forecasts from around 8.0% to around 7.8%.

As the opening bell rang on Wall Street, Bank of America (Dow) became the first of the big US banks to post an earnings miss. Its shares fell 4.7%. A research house issued a warning that Apple will post a "tepid" result next week, and Apple shares fell 5.5%. The warning follows weak results late on Tuesday for both Intel (Dow) and Yahoo. Apple dragged down the rest of the tech sector to push the Nasdaq to its 1.8% fall.

Over on the London Metals Exchange, it was becoming a bloodbath. Tuesday's relief bounces were timid, and traders wasted no time in reversing positions last night. Copper was hardest hit, falling 4%. Lead and tin fell 3%, nickel 2%, and aluminium and zinc 1.5%.

The scenes weren't much different on the oil exchanges (albeit the ICE is electronic), as the weekly US supply data was released. Crude supplies were not down as much as thought, and petrol supplies were much greater than thought. Brent fell US$2.18 to US$97.73/bbl and West Texas fell US$2.24 to US$86.46/bbl.

Having risen steeply on Tuesday, the euro tumbled 1% last night against the US dollar. The dollar index shot up 1% as the greenback once again became the safe haven of choice. No one's sure whether gold is a safe haven anymore, but it rose US$6.00 to US$1372.90/oz.

More popular now as a safe haven in the US is the VIX volatility index on the S&P 500. Wall Street loves a good derivative, and while the VIX tracks "fear" by measuring demand for options over the S&P, traders can not only buy a VIX contract, but they can also buy options over the VIX contract. Hence last night's 18.5% rise in the VIX to 16.5 was driven by traders buying VIX call options on the speculative assumption investors would start buying S&P put options for protection.

Got it?

It is interesting that the other safe haven ? the US bond market ? has not seen any real volatility this last week, nor all year really. At 1.7%, the ten-year yield has not much responded to new stock market highs or to subsequent falls.

The Dow was down close to 200 points at lunchtime, so we did actually see some afternoon buying in last night's session. The release of the Fed's Beige Book helped, which again suggested US economic growth was a more heart-warming "moderate" rather than falling back to the dreaded "modest". Fed official statements are beginning to become a broken record.

There was also news the Boston bomber had been arrested, which helped the mood, although later denied. And with America on tenterhooks there was news of a bomb threat at a Boston court house and possible poisoned letters being sent to the White House. On tenterhooks, and on High Alert.

With commodity prices crumbling once more, the Aussie has again fallen 0.9% to US$1.0297. We all want a lower Aussie, but be careful what you wish for, as weak commodity prices are not the impetus we really want to see. Spot iron ore is down US10c to US$139.30/t.

The SPI Overnight is down 33 points, or 0.7%,

So, is this the start of the pullback? All the hallmarks are there, but as we know, all talk has been of pullbacks offering an attractive entry levels to stocks which had previously run too far. As to how attractive markets will allow stocks to become is thus the point in question.

Bank of Queensland ((BOQ)) will report interim results today. Fortescue ((FMG)) and Woodside ((WPL)) will both provide quarterly production/sales reports and Wesfarmers ((WES)) releases quarterly retail sales data. Rio Tinto ((RIO)) has its AGM in London tonight.

Rudi will appear on Sky Business today at noon.