Dow Jones Newswires | U.S. stocks tumbled broadly Tuesday as
continued concerns over the health of European banks and heightened
tensions on the Korean peninsula prompted investors to flock toward the
safety of the dollar and U.S. Treasurys.
Gold, considered a geopolitical safe-haven, also climbed as investors
shunned risky assets on mounting concerns that the economic turmoil will
stunt global demand.
“It’s mostly a reaction to smoke as opposed to fire,” said Ed Crotty, chief investment officer at Davidson Investment Advisors. “When we’ve seen Germany react by banning naked short selling, when we’ve seen Spain come in and put in a rescue package for a small bank, it’s seen as smoke by investors. They’ve sold now and will ask questions later.”
The Dow Jones Industrial Average fell 201 points, or 2 percent, to 9,864, in midday trading, putting the measure on pace to close below the 10,000 level for the first time since Feb. 8.
Caterpillar, which gets much of its sales in overseas markets, led the Dow’s declines with a 3.2 percent drop. Chevron was also weak, off 3.1 percent, as crude-oil futures slid below $69 a barrel.
The Nasdaq Composite shed 2 percent, to 2,169, and the Standard & Poor’s 500 dropped 2 percent, to 1,052. Earlier in the session, the S&P 500 slipped briefly below 1,044.50, its intraday low for the year, hit Feb. 5. Its quick move back above that level brought comfort to some market participants.
“Our feeling was the S&P 500 needed to come back and successfully test the bottom of the market on Feb. 5,” said Phil Orlando, equity strategist at Federated Investors. “Hopefully we can start to stabilize now that we’ve come back and hopefully tested that 1,044 level.”
All of the measure’s sectors were in the red, with energy and utilities getting hit the hardest thanks to the slump in crude futures.
The U.S. Dollar Index, reflecting the U.S. currency against a basket of six others, jumped 0.8 percent. Treasurys also rose, pushing the yield on the 10-year note down to 3.15 percent, while gold futures climbed to nearly $1200 an ounce.
The action came as the market’s concerns escalated over the potential fallout of a waning European economy and fresh troubles in Asia as tensions escalated between North and South Korea.
“China has become even more important to the growth equation because of the troubles of Europe,” Crotty said. “To the extent that the tensions being heightened on the Korean peninsula raises fears in Asia and the potential that that could somehow stilt or inhibit China, it just raises the stakes.”
The Nikkei Stock Average dropped 3.1 percent in Tokyo and the Kospi lost 2.75 percent in Seoul.
European markets also slumped as concerns mounted over the rising interbank lending rates. The three-month U.S. dollar London interbank offered rate climbed to a 10-month high, rising to 0.53625 percent from 0.50969 prcent Monday. The Stoxx Europe 600 and Frankfurt’s DAX were each down more than 2 percent in afternoon trade. The Athens Stock Exchange was trading at one-year lows.
The euro fell to $1.2283 from $.12380 late Monday.
European banks bore the brunt of the selloff in Europe, extending the previous session’s losses following the weekend seizure of Spanish regional savings bank CajaSur. American depositary shares of Banco Santander dropped 2.7 percent while American depositary shares of Banco Bilbao Vizcaya Argentaria dropped 3.3 percent.
In the U.S., economic data were mixed. Private research group The Conference Board said U.S. consumer confidence jumped to 63.3 this month, better than the 58.5 expected. Separately, U.S. home prices rose 2 percent in the first quarter from prior-year lows, according to the S&P Case-Shiller home-price indexes. However, economic activity among manufacturers in the central Atlantic region grew more slowly in May, according to the Federal Reserve Bank of Richmond.
