Stocks fall on doubts about Europe
Fear of European debt is once again playing havoc with Wall Street.
Stocks pitched down Wednesday in the United States as borrowing rates climbed for Spain and Italy, a sign that investors are losing confidence in those countries’ finances. Many fear that Spain, strangled by high unemployment and a real estate collapse, could be the next nation to require financial rescue.
The Dow Jones industrial average was down as much as 184 points before recovering about half of the loss. Still, the average has fallen for six consecutive days, its longest losing streak since last summer.
The Dow soared 2,624 points, or 25 percent, from Oct. 3 through May 1 as European leaders appeared to get a handle on the debt crisis. Last fall, nations that use the euro agreed to enforce budget discipline across the region.
Since May 1, when the Dow closed at a four-year high, worries about Europe have resurfaced. In elections on Sunday, Greek and French voters ousted leaders who had imposed tough spending cuts to soothe investors.
In the six losing days that ended Wednesday, the Dow gave back 444 points — one-sixth of the points it gained during its eight-month rally. The Dow closed down 97.03 points, or 0.8 percent, at 12,835.06.
The Standard & Poor’s 500 index and Nasdaq composite average both closed well above their lows for the day. The S&P fell 9.14 points, or 0.7 percent, to 1,354.58. The Nasdaq dropped 11.56, or 0.4 percent, to 2,934.71.
Greece, without a government since Sunday’s elections, appears increasingly likely to exit the euro currency union or be forced out. The resulting uncertainty could cause turmoil throughout global markets.
The market today is tame compared with last summer, when the Dow routinely swung by hundreds of points a day.
But the atmosphere is starting to resemble last year’s as traders sell anything deemed risky based on the latest headlines from Europe, said Peter Tchir, who trades a range of investments for his hedge fund TF Market Advisors.
“The concern in Spain is at such a high level that people trade the indexes or big futures contracts and are less discriminating about what risk they’re taking on,” he said.
On Wednesday, prices fell for commodities such as energy, copper and silver, which are needed to sustain broad economic growth but are less valuable when the economy is weaker and demand wanes.
Benchmark crude oil, which sold for about $110 per barrel earlier this year, fell below $100 last week and kept sliding. It closed below $97 Wednesday on the New York Mercantile Exchange, continuing its longest decline since July.
European stocks are having one of their worst weeks in months.
London’s FTSE 100 index is down 2.2 percent this week, its worst performance since December. Stocks in Athens are down 10.8 percent, the most since August.
Cash flowed into ultra-safe investments such as U.S. Treasurys, pushing the yield on the 10-year note as low as 1.80 percent, near a seven-month low. The yield finished the day at 1.84 percent as stocks moved off their earlier lows.
One reason that demand for Treasurys is increasing: As Europe deteriorates and hiring in the U.S. slows, traders believe that the Federal Reserve is more likely to engage in another round of bond-buying to juice the economy.
Tchir expects the market to grow more volatile as traders track deadlines for indebted European nations to repay bond investors or raise cash. For investors who benefited from the recent rally, he said, “I think it’s time to take money off the table.” There’s too much of a disconnect between the Dow’s recent four-year high and European markets that are scraping three-year lows, he said.
In other news:
CHIQUITA BRANDS: It plunged 28.9 percent after the banana purveyor reported first-quarter earnings that were far below the expectations of Wall Street analysts.
MACY’S: It lost 3.8 percent after the department store chain made an earnings forecast that fell below Wall Street projections.
DISNEY: It rose 1.6 percent, the most of the 30 stocks in the Dow, after the whimsy-production conglomerate said its fiscal second-quarter earnings outpaced expectations.