Possibilities that Spain would have to seek a sovereign bailout
and a record jump in the nation's borrowing costs dragged the US
markets lower. The return of the European concerns resulted in the
Dow's second-consecutive triple digit loss; the first one since
April 10. Separately, an earnings miss by McDonald's was an
additional concern and the fast-food chain was the biggest laggard
in the Dow. However, the benchmarks pared some losses at a later
stage.
The Dow Jones Industrial Average (DJI) plunged 101.11 points or
0.8% to close at 12,721.46. The Standard & Poor 500 (S&P
500) dropped 0.9% to finish yesterday's trading session at
1,350.52. The tech-laden Nasdaq Composite Index lost 1.2% and was
down to 2,890.15. The fear-gauge CBOE Volatility Index (VIX) jumped
14.45 and settled at 18.62. Consolidated volumes on the New York
Stock Exchange, Nasdaq and the American Stock Exchange were 6.13
billion shares, lower than last year's daily average of 7.84
billion. Declining stocks far outnumbered the advancers on the
NYSE; as for 74% stocks that declined, 23% stocks moved
higher.
Last Friday, markets had to reverse their three-day winning
streak as European concerns returned to plague investor sentiment.
On Friday, markets flagged following an announcement by Valencia,
an autonomous region within Spain, that it was seeking financial
aid. Now, another Spanish region Murcia has followed suit and will
apply for bailout funds in September. Earlier this month, the
central government allocated $22 billion worth of fund. Ramon Luis
Valcarcel, the president of Murcia, commented: "To give you an
idea, between 200 to 300 million euros would be asked for. But I
don't know yet".
Amidst these concerns, Spain's borrowing costs sprung to a
euro-era high. Economic fears led Spain's 10-year bond yields to
7.565%, the highest ever since the euro was formed in 1999. Bond
yield of 7% is often considered to be an "unsustainable level".
Greece, Ireland and Portugal have had to seek bailouts when their
bond yields have crossed this figure. Thus, with Spain's bond
yields crossing 7%, investor fears intensified that the nation
would have to seek a sovereign bailout.
These European concerns dampened domestic sentiment and the
benchmarks had to settle sharply lower. Banking stocks are among
the most vulnerable ones to these concerns and the KBW Bank Index
(BKX) slumped 0.9%. Among the decliners, Citigroup Inc. (NYSE:
C
), Morgan Stanley (NYSE:
MS
), UBS AG (USA) (NYSE:
UBS
), Deutsche Bank AG (USA) (NYSE:
DB
), Royal Bank of Scotland Group plc (ADR) (NYSE:
RBS
), Credit Suisse Group AG (ADR) (NYSE:
CS
) and Wells Fargo & Company (NYSE:
WFC
) plunged 2.1%, 1.1%, 2.0%, 4.3%, 3.6%, 1.9% and 1.1%,
respectively.
Separately, earnings results were of little help to the markets
on Monday. Rather, an earnings miss by McDonald's Corporation
(NYSE:
MCD
) and the eventual 2.9% drop in its shares made it the biggest
laggard among the Dow components. Lower comparable-store sales
across all regions coupled with unfavorable currency have impacted
McDonald's quarterly figures. Quarterly earnings not only missed
estimates, but were also down year on year. However, Hasbro, Inc.
(NASADQ:
HAS
) and Halliburton Company (NYSE:
HAL
) reported encouraging quarterly results. Shares of these companies
jumped 4.0% and 2.4%, respectively.
CITIGROUP INC (C): Free Stock Analysis Report
CREDIT SUISSE (CS): Free Stock Analysis Report
DEUTSCHE BK AG (DB): Free Stock Analysis Report
HALLIBURTON CO (HAL): Free Stock Analysis
Report
HASBRO INC (HAS): Free Stock Analysis Report
MCDONALDS CORP (MCD): Free Stock Analysis
Report
MORGAN STANLEY (MS): Free Stock Analysis Report
ROYAL BK SC-ADR (RBS): Free Stock Analysis
Report
UBS AG (UBS): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis
Report
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