Markets suffered a heavy fall yesterday as political uncertainty in Europe continued and China’s economic health looked gloomier than previously perceived. Financial bellwether JPMorgan’s disclosure that it had suffered a $2 billion trading loss remained an overhang on the markets and dragged down financials once again. As the benchmarks finished in the red, S&P 500 recorded its lowest level since February.
The Dow Jones Industrial Average (DJI) inched down 1% to close at 12,695.35. The Standard & Poor 500 (S&P 500) lost 1.1% and finished yesterday’s trading session at 1,338.35. The tech-laden Nasdaq Composite Index slumped 1.1% and ended at 2,902.58. The fear-gauge CBOE Volatility Index (VIX) jumped almost 10% to settle significantly higher at 21.87. Consolidated volumes on the New York Stock Exchange, Nasdaq, and the American Stock Exchange were roughly 6.6 billion shares, lower than the daily average of 6.78 billion shares. Declining stocks hammered the advancing ones on the NYSE; as for every five stocks that ended lower, only one stock could move higher.
Benchmarks had raised high hopes earlier this year, when they started with a bang. Aside from a few low days, benchmarks sprung to individual key levels and sustained those levels for a while. However, over the past couple of weeks benchmarks have been vulnerable to European concerns arising out of political uncertainty and rising borrowing costs. They have also been dented by a mixed bag of domestic economic data as well as by dismal data from Europe and China. It hasn’t been smooth sailing, which is highlighted by the fact that the Dow has closed in the red on eight occasions out of the last nine trading days and the S&P 500 recorded its fourth decline out of five sessions. Moreover, the benchmarks are almost near their three-month lows and last week the Dow posted its worst weekly performance for the year.
Things were no different yesterday as European concerns continued to hamper domestic sentiment. Greece is still struggling to form a government. On Monday, President Karolos Papoulias called four party leaders for talks, but optimism arising out of this development soon vanished after the SYRIZA party denied attending the meeting, which was followed by another leftist leader walking out. With the nation still grappling to form a government and signs strongly suggesting that things are getting tougher, Greece may soon default on its debt and eventually exit the euro. The nation needs a government to secure the bailout and avoid this scenario. Following yesterday’s developments, Greece, Italy and Spain witnessed another rise in their borrowing costs.
Additionally, German chancellor Angela Merkel seemed to be in a tough spot, after center-left Social Democrats defeated her Christian Democrat party in a poll by a huge margin. This yet again reflects the public’s attitude to austerity measures. Merkel termed it as a “bitter, painful defeat”, but she said that she will still stick to the austerity plans.
Meanwhile, China’s has decided to reduce the amount of cash that the country’s banks must retain. The decision was described ad ‘pro-growth’ and was aimed at easing the monetary situation. However, with most of the data coming in over the last few days being of a disappointing nature, investors’ faith in the second-largest economy has reduced and the possibility of a softening economy weighed on the markets.
Shifting to the domestic front, an earlier disclosure by JPMorgan Chase & Co. (NYSE:JPM) about suffering a loss of $2 billion continued to hamper he sentiments. In latest developments, Ina Drew resigned as the chief investment officer, thus becoming the first among the top executives to vacate office after the incident.
Shares of JPMorgan slumped 3.2% and the stock emerged as the biggest loser among the 30 Dow components. Other financial stocks in the Dow, American Express Company (NYSE:AXP) and Bank of America Corporation (NYSE:BAC) suffered losses of 2.1% and 2.7%, respectively. Financials had a bad day and the Financial Select Sector SPDR (XLF) slipped as much as 2.1%. Shares including Citigroup, Inc. (NYSE:C), Morgan Stanley (NYSE:MS), The Goldman Sachs Group, Inc. (NYSE:GS) and Wells Fargo & Company (NYSE:WFC) lost 4.1%, 4.4%, 2.3% and 2.7%, respectively.
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