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Stocks trade mixed on new worries about Europe
Source: Agencies |
May 25, 2010, Tuesday
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FINANCIAL companies pulled stocks lower yesterday after the rescue of a regional bank in Spain added to concerns about Europe's economy. Investors were also selling banks on uncertainty about the government financial overhaul plan.
The Dow Jones industrial average fell about 80 points in afternoon trading.
The moves in the market were still relatively mild compared with the big swings in stocks last week. The euro fell after a bailout over the weekend of a regional bank in Spain. The country is one of those already dealing with ballooning deficits. The Bank of Spain stepped in to rescue Cajasur after it failed to complete a merger. It was only the second time Spain's central bank saved a regional lender.
The concern is that there could be more rescues to come if a wave of bad debt cascades through the financial markets. It's not clear that will happen but traders remember well the problems in the U.S. that began with bad subprime loans. That started small but eventually helped take down Lehman Brothers in September 2008.
The euro fell against the dollar, dropping to US$1.2399. The 16-nation currency has become a symbol of investors' concern about the continent's economy. Traders have been dumping the euro on fears that massive debts will cause a default by a weaker country in the European Union. The euro hit a four-year low against the dollar last week.
Analysts question whether countries like Greece, Spain and Portugal will be able to contain mounting debt through steep spending cuts. Investors are also worried that those budget cuts will upend an economic recovery in Europe and slow a worldwide rebound.
"Right now the U.S. financial markets are trading very much out of fear and not any fundamentals," said Guy LeBas, chief fixed income strategist of Janney Montgomery Scott in Philadelphia.
In late afternoon trading, the Dow fell 79.58, or 0.8 percent, to 10,113.81. The broader Standard & Poor's 500 index fell 7.98, or 0.7 percent, to 1,079.71, and the technology-dominated Nasdaq composite index fell 1.35, or less than 0.1 percent, to 2,227.69.
Losing stocks were ahead of advancers by 8 to 7 on the New York Stock Exchange, where volume came to came to 885 million shares.
Despite a rally Friday that lifted the Dow 125 points, major indexes were still sharply lower last week. Stocks are now trading at about where they were in early February and are down for the year.
Major indexes are down about 10 percent from their highs of the year, set in late April. That size drop is known as a "correction." It's the first retreat of that scale since stocks began a largely uninterrupted advance off of 12-year lows reached in March of 2009.
Bond prices rose. Investors have been flocking to the relative safety of government bonds and have at times dumped riskier assets like stocks and commodities. The yield on the 10-year Treasury note, which moves opposite its price, fell to 3.23 percent from 3.24 percent late Friday.
Gold rose US$1,195.40 an ounce.
Crude oil rose 70 cents to US$70.21 per barrel on the New York Mercantile Exchange.
Mark Coffelt, portfolio manager at Empiric Funds in Austin, Texas, said traders are still cautious because the financial overhaul bill that passed the Senate last week is now being reconciled with a version that passed the House. There are still questions about how the final bill will emerge and how the regulation might shift the way companies like banks operate.
"We're giving more oversight to the various regulators that failed us before," Coffelt said. He is concerned that tighter rules will constrict the availability of credit and hurt the economy. "Governments aren't looking very competent."
Traders drew little comfort from welcome news about the U.S. economy. The National Association of Realtors said sales of previously owned homes rose 7.6 percent to an annual rate of 5.77 million. That is the best showing in five months and ahead of expectations. But analysts noted that buyers were rushing to meet a deadline for a tax credit.
Among tech stocks, Apple Inc. rose US$7.70, or 3.2 percent, to US$250.02. Google Inc. rose US$13.11, or 2.8 percent, to US$485.16.
Investors brushed off gains in Asia, where China's president said the country will loosen its currency policy. No timetable was given, however. China's Shanghai Composite index jumped 3.5 percent.
The Dow Jones industrial average fell about 80 points in afternoon trading.
The moves in the market were still relatively mild compared with the big swings in stocks last week. The euro fell after a bailout over the weekend of a regional bank in Spain. The country is one of those already dealing with ballooning deficits. The Bank of Spain stepped in to rescue Cajasur after it failed to complete a merger. It was only the second time Spain's central bank saved a regional lender.
The concern is that there could be more rescues to come if a wave of bad debt cascades through the financial markets. It's not clear that will happen but traders remember well the problems in the U.S. that began with bad subprime loans. That started small but eventually helped take down Lehman Brothers in September 2008.
The euro fell against the dollar, dropping to US$1.2399. The 16-nation currency has become a symbol of investors' concern about the continent's economy. Traders have been dumping the euro on fears that massive debts will cause a default by a weaker country in the European Union. The euro hit a four-year low against the dollar last week.
Analysts question whether countries like Greece, Spain and Portugal will be able to contain mounting debt through steep spending cuts. Investors are also worried that those budget cuts will upend an economic recovery in Europe and slow a worldwide rebound.
"Right now the U.S. financial markets are trading very much out of fear and not any fundamentals," said Guy LeBas, chief fixed income strategist of Janney Montgomery Scott in Philadelphia.
In late afternoon trading, the Dow fell 79.58, or 0.8 percent, to 10,113.81. The broader Standard & Poor's 500 index fell 7.98, or 0.7 percent, to 1,079.71, and the technology-dominated Nasdaq composite index fell 1.35, or less than 0.1 percent, to 2,227.69.
Losing stocks were ahead of advancers by 8 to 7 on the New York Stock Exchange, where volume came to came to 885 million shares.
Despite a rally Friday that lifted the Dow 125 points, major indexes were still sharply lower last week. Stocks are now trading at about where they were in early February and are down for the year.
Major indexes are down about 10 percent from their highs of the year, set in late April. That size drop is known as a "correction." It's the first retreat of that scale since stocks began a largely uninterrupted advance off of 12-year lows reached in March of 2009.
Bond prices rose. Investors have been flocking to the relative safety of government bonds and have at times dumped riskier assets like stocks and commodities. The yield on the 10-year Treasury note, which moves opposite its price, fell to 3.23 percent from 3.24 percent late Friday.
Gold rose US$1,195.40 an ounce.
Crude oil rose 70 cents to US$70.21 per barrel on the New York Mercantile Exchange.
Mark Coffelt, portfolio manager at Empiric Funds in Austin, Texas, said traders are still cautious because the financial overhaul bill that passed the Senate last week is now being reconciled with a version that passed the House. There are still questions about how the final bill will emerge and how the regulation might shift the way companies like banks operate.
"We're giving more oversight to the various regulators that failed us before," Coffelt said. He is concerned that tighter rules will constrict the availability of credit and hurt the economy. "Governments aren't looking very competent."
Traders drew little comfort from welcome news about the U.S. economy. The National Association of Realtors said sales of previously owned homes rose 7.6 percent to an annual rate of 5.77 million. That is the best showing in five months and ahead of expectations. But analysts noted that buyers were rushing to meet a deadline for a tax credit.
Among tech stocks, Apple Inc. rose US$7.70, or 3.2 percent, to US$250.02. Google Inc. rose US$13.11, or 2.8 percent, to US$485.16.
Investors brushed off gains in Asia, where China's president said the country will loosen its currency policy. No timetable was given, however. China's Shanghai Composite index jumped 3.5 percent.
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