Fresh concerns about the Greek debt deal resulted in one of the markets’ worst trading days of the year on Tuesday. The Dow plunged over 200 points, recording its biggest decline since December 8, 2011, and the largest triple-digit loss for this year. With the re-emergence of European tensions, the fear-gauge CBOE Volatility Index soared above its 50-day moving average.
The Dow Jones Industrial Average (DJI) shed 203.66 points or 1.6% to close the day at 12,759.15. The Standard & Poor 500 (S&P 500) plunged 1.5% and finished yesterday’s trading session at 1,343.36. The tech-laden Nasdaq Composite Index lost 1.4% and was down to 2,910.32. The fear-gauge CBOE Volatility Index (VIX) soared 15.62% and settled at 20.87. The VIX broke beyond its 50-day moving average for the first time since November. Consolidated volumes on the New York Stock Exchange, NYSE Amex and Nasdaq were roughly 7.6 billion shares, ahead of the daily average of 6.9 billion. Declining stocks beat the advancers on the NYSE, as for 10 stocks that declined only one stock managed to move up.
None of the two days of this week have brought any cheer to the investors and the benchmarks are significantly lower for the week till now. The Dow, S&P 500 and the Nasdaq are down 1.7%, 1.9% and 2.2%, respectively, for the week. These declines are all the more significant as the benchmarks had mostly been having a good weekly run recently. Even last week, benchmarks touched new multi-year highs. The Dow settled above 13, 000 on Tuesday, the first time since May 2008 and the S&P 500 was at its highest closing level since June 2008. Additionally, the tech-laden index crossed the 3, 000 mark last Wednesday, but failed to sustain those levels by the closing bell.
Apprehension over the outcome of the bond-swap deal in Greece kept the investors on the edge. The bondholders have till Thursday to swap their current Greek notes with new bonds. In the process, they will have to lose out on three quarters of the debt value. This is one of the pre-requisites for Greece to receive a bailout fund. The country is in dire need of funds and will have to enroll more of its bondholders to shoulder the burden of debt. Reportedly, 20% of the bondholders have agreed to the bond-swap. Officials also rubbished rumors that the deadline will be extended, so the investors and the world economy will get to know something definite by March 8. The Institute of International Finance said that a Greek default will cause the eurozone damage worth $1.3 trillion.
There was more bad news in store as the European Union said that the economy had shrunk 0.3% in the fourth quarter of 2011. The contraction, which was in line with expectations, escalated recessionary fears and the world economy’s outlook looks gloomy again. Additionally, as per Eurostat, over the same period, investment declined 0.7%, exports slipped 0.4% and household spending was down 0.4%.
The financial sector bore the brunt of these concerns and the Financial SPDR Select Sector Fund (XLF) was down 2.5%. Among the stocks, Goldman Sachs Group, Inc. (NYSE:GS), Bank of America Corporation (NYSE:BAC), American Express Company (NYSE:AXP), Citigroup, Inc. (NYSE:C) and Morgan Stanley (NYSE:MS) lost 4.2%, 3.3%, 2.3%, 4.6% and 5.3%, respectively.
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