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US stocks slide as crisis in Europe deepens
Source: Agencies |
July 21, 2012, Saturday
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FOR the past few days, the US stock market was able to forget about problems in Europe.
Yesterday put Europe squarely back in the spotlight.
US stocks fell sharply as escalating problems in Spain jolted investors. Spain's stock market plunged 6 percent and its borrowing costs spiked after a regional government asked for a financial lifeline.
The drop on Wall Street, which sent the Dow Jones industrial average down almost 130 points, marked a U-turn for the market. Stocks had risen over the past three days as investors focused on strong earnings from US companies like Mattel, Honeywell and Coca-Cola.
Yesterday, talk of sluggishness in Europe was prevalent as more companies turned in their quarterly results.
Staffing agency Manpower fell 7 percent, and chip maker Advanced Micro Devices fell 12 percent, after reporting that weak demand in Europe had dragged down second-quarter revenue.
Xerox trimmed its earnings forecasts as Europeans bought less equipment. Ingersoll-Rand, whose products include Trane air conditioners, cut its revenue prediction for the same reason. Both stocks fell.
Late Thursday Guitar maker Fender abruptly canceled its plans to go public, blaming "current market conditions" and "concerns about economic conditions in Europe." And General Electric, though its stock rose, noted yesterday that its orders were down in Europe.
"We prepared ourselves for a pretty tough year this year, or certainly a volatile year," CEO Jeff Immelt said in a call with analysts. "We haven't been disappointed." GE's finance officer, Keith Sherin, said the company is making "a full-court press" to reduce exposure to Europe.
Even the Internet powerhouse Google noted that growth in Southern Europe had slowed down, particularly in Spain. Google did manage to increase its quarterly income, sending its stock up 3 percent.
All major US stock indexes fell. By mid-afternoon, the Dow Jones industrial average dropped 127 points to 12,815. The Standard & Poor's 500 fell 13 to 1,363. The Nasdaq composite index lost 34 to 2,931. All three indicators were down about 1 percent.
Despite the generally sour mood in the market, two tech companies soared on their first day of trading. Kayak Software, a travel-booking website, jumped US$8.50 to US$34.50 and Palo Alto Networks, a technology security company, rose US$14.64 to US$56.64.
The broad downturn was an unwelcome change after three days of gains, the Dow's longest winning streak in more than a month. Until Friday, investors focused on upbeat earnings from US companies. About two-thirds of the companies that have reported second-quarter earnings so far have beat expectations.
Jeff Mortimer, director of investment strategy for Bank of New York Mellon's wealth management division, expects Europe's problems to drag on for a long while.
"There is no quick answer to the issues that they're wrestling with," he said. "They have a sovereign debt issue, they have a banking issue and they have a growth issue. ... I think we'll have one eye over there for years."
Spain was the epicenter of the latest European earthquake. Protestors took to the streets to voice their disapproval of government spending cuts. The Treasury minister announced that the recession would drag on into next year. And the region of Valencia said it needed help from the central government to pay its bills.
Spain also got official approval from the other euro countries for a bailout for its struggling banks, but that wasn't enough to calm investors. The Spanish government's borrowing costs shot above 7 percent, meaning the country could soon find itself unable to afford to borrow money. Spain's benchmark stock index plunged 6 percent.
To be sure, bad financial news out of Spain is hardly new. Just as troubling, if not more so, were budding signs that the crisis is deepening even among Europe's relatively strong members. Germany announced that its economic growth likely slowed in the second quarter. In the U.K., the government said it had to borrow more than expected in June.
Yesterday put Europe squarely back in the spotlight.
US stocks fell sharply as escalating problems in Spain jolted investors. Spain's stock market plunged 6 percent and its borrowing costs spiked after a regional government asked for a financial lifeline.
The drop on Wall Street, which sent the Dow Jones industrial average down almost 130 points, marked a U-turn for the market. Stocks had risen over the past three days as investors focused on strong earnings from US companies like Mattel, Honeywell and Coca-Cola.
Yesterday, talk of sluggishness in Europe was prevalent as more companies turned in their quarterly results.
Staffing agency Manpower fell 7 percent, and chip maker Advanced Micro Devices fell 12 percent, after reporting that weak demand in Europe had dragged down second-quarter revenue.
Xerox trimmed its earnings forecasts as Europeans bought less equipment. Ingersoll-Rand, whose products include Trane air conditioners, cut its revenue prediction for the same reason. Both stocks fell.
Late Thursday Guitar maker Fender abruptly canceled its plans to go public, blaming "current market conditions" and "concerns about economic conditions in Europe." And General Electric, though its stock rose, noted yesterday that its orders were down in Europe.
"We prepared ourselves for a pretty tough year this year, or certainly a volatile year," CEO Jeff Immelt said in a call with analysts. "We haven't been disappointed." GE's finance officer, Keith Sherin, said the company is making "a full-court press" to reduce exposure to Europe.
Even the Internet powerhouse Google noted that growth in Southern Europe had slowed down, particularly in Spain. Google did manage to increase its quarterly income, sending its stock up 3 percent.
All major US stock indexes fell. By mid-afternoon, the Dow Jones industrial average dropped 127 points to 12,815. The Standard & Poor's 500 fell 13 to 1,363. The Nasdaq composite index lost 34 to 2,931. All three indicators were down about 1 percent.
Despite the generally sour mood in the market, two tech companies soared on their first day of trading. Kayak Software, a travel-booking website, jumped US$8.50 to US$34.50 and Palo Alto Networks, a technology security company, rose US$14.64 to US$56.64.
The broad downturn was an unwelcome change after three days of gains, the Dow's longest winning streak in more than a month. Until Friday, investors focused on upbeat earnings from US companies. About two-thirds of the companies that have reported second-quarter earnings so far have beat expectations.
Jeff Mortimer, director of investment strategy for Bank of New York Mellon's wealth management division, expects Europe's problems to drag on for a long while.
"There is no quick answer to the issues that they're wrestling with," he said. "They have a sovereign debt issue, they have a banking issue and they have a growth issue. ... I think we'll have one eye over there for years."
Spain was the epicenter of the latest European earthquake. Protestors took to the streets to voice their disapproval of government spending cuts. The Treasury minister announced that the recession would drag on into next year. And the region of Valencia said it needed help from the central government to pay its bills.
Spain also got official approval from the other euro countries for a bailout for its struggling banks, but that wasn't enough to calm investors. The Spanish government's borrowing costs shot above 7 percent, meaning the country could soon find itself unable to afford to borrow money. Spain's benchmark stock index plunged 6 percent.
To be sure, bad financial news out of Spain is hardly new. Just as troubling, if not more so, were budding signs that the crisis is deepening even among Europe's relatively strong members. Germany announced that its economic growth likely slowed in the second quarter. In the U.K., the government said it had to borrow more than expected in June.
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