A surprise move from the Greek prime minister calling for a referendum on the bailout package dealt a body blow to markets with investors fearing the possibility of a collapse of the euro-zone bailout plan. Domestic economic data further dampened sentiment and benchmarks struggled to find any catalysts that could limit losses.
The Dow Jones Industrial Average (DJIA) plunged 297 points or 2.5% to settle the day at 11,657.96. The Standard & Poor 500 (S&P 500) closed the day at 1,218.28, plummeting 2.8% lower. The Nasdaq Composite Index slumped a hefty 2.9% and finished the day at 2,606.96. Fears dominated sentiment as the fear-gauge CBOE Volatility Index (VIX) hit its highest point since mid-October, leaping 16% to 34.77. While the markets moved lower, consolidated volumes on the NYSE, Amex, and Nasdaq increased 22% over its 20-day moving average to 10.3 billion shares. For six stocks that declined in the NYSE, only one stock advanced.
A three-digit movement for the Dow had almost become a norm, but unfortunately the blue-chip index logged back-to-back three-digit slides. All but one of its 30 components, Pfizer Inc. (NYSE:PFE), treaded the negative route. The banking sector was once again among the leading decliners for the day. Apart from banking stocks, shares of Alcoa, Inc. (NYSE:AA), Boeing Co. (NYSE:BA) , Caterpillar Inc. (NYSE:CAT), Cisco Systems, Inc. (NASDAQ:CSCO), Walt Disney Co. (NYSE:DIS), General Electric Co. (NYSE:GE), 3M Co. (NYSE:MMM), The Travelers Companies, Inc. (NYSE:TRV) and United Technologies Corp. (NYSE:UTX) suffered the heaviest declines in the blue-chip index shedding 3.4%, 4.0%, 3.0%, 5.1%, 3.7%, 4.1%, 3.2%, 3.3% and 3.6%, respectively.
Moving on to the S&P 500, yesterday’s slide took it to 1,218, which was the index’s first trade below the 14-day moving average since October 7, 2011. None of the 10 industry groups of the S&P 500 managed to finish in the green, and as mentioned earlier, financials suffered a heavy slump. Bellwethers including Bank of America Corporation (NYSE:BAC), Citigroup, Inc. (NYSE:C), The Goldman Sachs Group, Inc. (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM), Morgan Stanley (NYSE:MS) and Wells Fargo & Company (NYSE:WFC) plunged 6.3%, 7.7%, 5.5%, 5.9%, 8.0% and 4.4%, respectively.
While it was encouraging developments from the European front that took the benchmarks higher last week fresh anxieties over the European deal have dented the markets throughout this week. The call for a referendum on the European debt plan by the Greek Prime Minister rattled the benchmarks yesterday. The announcement was made late on Monday and comes amidst raging opposition by the public over austerity measures and worsening economic conditions.
Though, initially it was believed that such a move would not ultimately come to pass, the Greek leader’s determined stance to stick to his decision dragged the domestic markets to session lows. Greek officials were of the view that a referendum would dilute the opposition against salary cuts and government spending. The surprise move from Greece may jeopardize the entire global economy and experts believe that rejecting the bailout plan might lead to “hard default” by Greece.
This fresh development came in just a week after the breakthrough made by European leaders, the International Monetary Fund (IMF) and bankers during the European Council summit. There were questions raised over the efficiency of the plan and anxiety grew as few details emerged, which adversely affected the markets. But the surprise move from Greece is a larger threat and a “hard default” it might cause larger losses for banks.
On the economic front, there was not much for the investors to cheer about as the rate of growth in the U.S. manufacturing sector slowed down in October. The Institute of Supply Management’s Manufacturing Index decreased 0.8% from September to a reading of 50.8 in October. This was also lower-than-expectations of a reading of 52.3. However, “The New Orders Index increased 2.8 percentage points from September to 52.4 percent, indicating a return to growth after three months of contraction”.
Separately, the Department of Commerce reported that construction spending during September 2011 had increased by 0.2% to a seasonally adjusted annual rate of $787.2, from the revised August estimate of $786.0 billion. The 0.2% increase was also in line with the consensus for the current period.
