Worsening Eurozone debt worries, highlighted by a surge in Italian bond yields, dragged the markets heavily down to their worst performance in a day since mid-August. The Dow slumped 389 points, posting its largest fall in seven weeks and all of the 10 industry groups in the S&P were hammered to the red zone.
The Dow Jones Industrial Average (DJIA) crashed 3.2% and settled at 11,780.94, posting the sixth-heaviest fall this year. The Standard & Poor 500 (S&P 500) was hammered down to 1,229.10, down 3.7%. The Nasdaq Composite Index plunged 3.9% and closed the day at 2,621.65. Just when the fear-gauge CBOE Volatility Index (VIX) showed signs of subdued fears, as it receded below 30 and dropped about 8.7% till Tuesday this week, yesterday’s sky-rocketing leap of 31.6% took it to 36.26. The fear-gauge index recorded its largest-daily percentage gain since mid-August, reflecting heightened fears in the markets. On the New York Stock Exchange (NYSE), American Stock Exchange and Nasdaq, consolidated volumes were 8.65 billion shares, slightly over last year’s daily average of 8.47 billion. On the NYSE, for a total of nine stocks that dropped, only one stock managed to finish in the green. While the turmoil left the Dow lingering on a 1.8% gain for this year, the S&P 500 and Nasdaq were back to the negative territory.
None of the 30 Dow components could manage to settle in the green zone. Leaving out the banking stocks, the leading losers included Alcoa, Inc. (NYSE:AA), Caterpillar Inc. (NYSE:CAT), Chevron Corporation (NYSE:CVX), E. I. du Pont de Nemours and Company (NYSE:DD), Hewlett-Packard Company (NYSE:HPQ), 3M Co. (NYSE:MMM), Pfizer Inc. (NYSE:PFE) and United Technologies Corp. (NYSE:UTX) and they plunged 5.4%, 4.4%, 4.2%, 4.5%, 5.4%, 3.5%, 3.7% and 3.1%, respectively.
Separately, all of the 10 industry groups in the S&P declined to the red zone with the financial sector suffering a heavy blow. The Financial Select Sector SPDR (XLF) fund dropped 5.4% with the SPDR S&P Bank ETF (KBE) index down 5.8%. Bellwethers including American Express Company (NYSE:AXP), Bank of America Corporation (NYSE:BAC), Citigroup, Inc. (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM), Morgan Stanley (NYSE:MS) and The Goldman Sachs Group, Inc. (NYSE:GS) sank 4.2%, 5.7%, 8.2%, 7.1%, 9.0% and 8.2%, respectively.
In recent months, European headlines have mostly been guiding the domestic markets, with the bad news overcoming the good ones in most occasions. A day after investors cheered the news of Italian Prime Minister Silvio Berlusconi deciding to vacate his office; markets were dealt another blow yesterday as incremental fears and anxiety over Italy’s future unnerved investors. Also what rattled the investors was the more than 7% spike of the Italy’s 10-year bond yield, which was the highest jump since the time euro was launched in 1999.
Market onlooker opined that Italy’s bond has begun to serve in similar fashion the fear-gauge VIX does. This 7% spike also looked to quiver a psychological response, as similar incidents of increased bond yield had heightened fears in the past about the debt-stricken countries like Greece, Ireland and Portugal. All of these nations ultimately needed a bailout fund. As for Italy, reports hinted that European Union officials said they do not have any plan ready to rescue the nation, although rumors among analysts suggested that an ECB meeting is scheduled to decide on aggressively buying more Italian bonds.
On the economic front, the U.S. Department of Commerce reported a 0.1% drop in the total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes. The figure for September-end stood at $462.0 billion, which was however up 11.9% from prior-year period. The 0.1% drop came in contrary to the consensus expectations of a 0.6% gain.
