Markets closed in the red as higher bond yields and a dismal European industrial production report hinted at the lingering economic crisis in the region. The positive effects of a change in leadership seem to have diminished strength as recessionary woes take the upper hand with sharply low volumes reflecting a lack of conviction.
The Dow Jones Industrial Average (DJIA) declined 0.6% to close the day at 12,078.98. The Standard & Poor 500 (S&P 500) moved down by nearly a percent to finish at 1,251.78. The tech-laden Nasdaq Composite Index dropped 0.8% and settled at 2,657.22. The fear-gauge CBOE Volatility Index (VIX) continued to reflect the existing anxiety among the investors as it settled over 31. Consolidated volumes on the New York Stock Exchange, NYSE Amex and Nasdaq slid to 5.5 billion shares, the third-lowest level so far this year. Volumes were substantively lower than the year’s daily average which is slightly higher than 8 billion shares. Individually, the Nasdaq posted its thinnest volumes of the year as a mere 1.38 billion shares exchanged hands. Composite volumes on the NYSE alone accounted for 3.1 billion shares; and for every one stock that moved up on the index, three stocks moved lower.
Despite back-to-back gains on Thursday and Friday last week, markets have hit a roadblock as change of leaderships may not be enough to ensure a resolution to the European debt crunch. Lingering debt problems in the region have hit the euro and it dropped against the greenback. The euro was down more than 1% against the dollar. Separately, Italy’s debt issues kept mounting with another spike in its yields on 10-year Italian debt that jumped to 6.76% yesterday.
Last week, investor sentiment was rattled by the more than 7% spike in Italy’s 10-year bond yield, which was the highest jump since the time euro was launched in 1999. This 7% spike also threatened to trigger a psychological response, as similar incidents of increased bond yield had heightened fears in the past about debt-stricken countries like Greece, Ireland and Portugal, all of which ultimately required a bailout. Elsewhere, France and Spain’s yields also moved up to close near session highs. Higher bond rates make it more difficult for the countries to address their financial issues.
To add to these woes, European industrial production suffered its sharpest decline in September since February 2009. The European Union’s statistics agency reported that the 17-nation euro-zone’s industrial production dropped 2% in September from the prior month. On a yearly basis, industrial production was up 2.2%, but this was the weakest increase in almost two years.
The financial sector was one of the largest decliners with the Financial Select Sector SPDR (XLF) fund dropping roughly 2.0%. Among the declining stocks were Bank of America Corporation (NYSE:BAC), Citigroup, Inc. (NYSE:C), Deutsche Bank AG (NYSE:DB), The Goldman Sachs Group, Inc. (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM), Morgan Stanley (NYSE:MS) and UBS AG (NYSE:UBS) and they were down 2.6%, 3.2%, 3.1%, 2.3%, 2.2%, 2.7% and 2.7%, respectively.
BANK OF AMER CP (BAC): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
DEUTSCHE BK AG (DB): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
