Benchmarks took a battering on Monday following uncertainty
about the outcome of the Italian elections and a revival of euro
zone concerns. The instability in the Italian government
indicates European debt problems might resurface which in turn
could weaken the global economy. The major indices logged their
worst day since November. All ten S&P 500 industry groups
ended in the red. Energy stocks were the biggest losers.
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The Dow Jones Industrial Average (DJI) lost 1.6% to close the day
at 13,784.17. The S&P 500 decreased 1.8% to finish
yesterday's trading session at 1,487.85. The tech-laden Nasdaq
Composite Index declined 1.4% to end at 3,116.25. The fear-gauge
CBOE Volatility Index (VIX) jumped 34% to settle at 18.99.
Consolidated volumes on the New York Stock Exchange, American
Stock Exchange and Nasdaq were roughly 7.27 billion shares, well
above the daily average of 6.45 billion shares for 2012.
Declining stocks outnumbered the advancing stocks. For the 24%
that advanced, 74% declined.
Markets started yesterday's trading session on a positive note
and the S&P 500 advanced as much as 0.7% in morning
trade. But skepticism about the Italian political situation
and fears of a reemergence of the euro zone crisis dragged the
indices into the negative. The S&P 500 closed below 1,500 for
the first time since February 4. The fear-gauge CBOE VIX surged
by 34%, its highest increase since August 18, 2011.
Uncertainty over the Italian elections dampened investor
sentiment yesterday. The result of the elections will have a
major impact on the European financial scenario since Italy is
one of the region's largest economies. According to three TV
forecasts, the centre-left coalition has a marginal lead over
centre-right, lead by ex-Prime Minister Silvio Berlusconi. If any
of the two blocs is unable to gain a clear majority in the
Senate, fresh elections would have to be held. This could trigger
fears of Italy defaulting on its debt.
Meanwhile, the final day to decide on reduction of US government
spending as well as taxes is Friday. If by then, Democrats and
Republicans fail to meet on common ground, federal spending will
be decreased by $85 billion a month for seven months and $1.2
trillion over nine years. Spending cuts worth $85 billion will
adversely affect major sectors like defense, education, and
healthcare. President Barack Obama said, "Companies are preparing
layoff notices. Families are preparing to cut back on expenses.
On the earnings front, shares of Lowe's Companies, Inc. (NYSE:
) dipped 4.8% in-spite of posting robust earnings and revenues.
The company's earnings and revenues beat the Street's estimates
but missed on the outlook front. For fiscal 2013, the company
guided earnings per share to $2.05 versus the Street's estimates
of $2.10. The company said it has taken steps to cut costs in
terms of lower hiring, closing locations and investing more in
its online business.
Home building stocks took a hammering yesterday and the SPDR
S&P Homebuilders (XHB) lost 3.5%. Stocks such as The Home
Depot, Inc. (NYSE:
), Lumber Liquidators Holdings Inc (NYSE:
), M.D.C. Holdings, Inc. (NYSE:
), The Ryland Group, Inc. (NYSE:
) and D.R. Horton, Inc. (NYSE:
) dropped 2.5%, 6.7%, 4.5%, 5.4% and 4.2%, respectively.
Energy stocks declined the most among the top ten industry groups
in the S&P 500. The Energy Select Sector SPDR (NYSEARCA:
) lost 2.6%. Stocks such as Exxon Mobil Corporation (NYSE:
), Chevron Corporation (NYSE:
), Marathon Oil Corporation (NYSE:
), Hess Corp. (NYSE:
) and Suncor Energy Inc. (USA) (NYSE:
) declined 1.7%, 2.1%, 5.1%, 3.5% and 2.3%, respectively.