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Investor concerns about the European banking system dragged domestic benchmarks lower on Thursday. One of Portugal’s largest banks, Banco Espírito Santo SA, failed to make bond payments. These jitters compelled investors to park money in safe haven-assets. Economic data from Asia was also disappointing and led investors to cut equity exposure. Domestic economic reports were limited to encouraging initial claims numbers and a less-than-expected rise in U.S wholesale inventories.

For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article

The blue-chip index dropped as much as 180.23 points shortly after the opening bell. The S&P 500 too briefly declined 1.0% in early trade. That was the largest daily drop since April 10. However, the benchmarks recovered most of the initial losses.

The Dow Jones Industrial Average (DJI) declined 0.4% to close Thursday’s trading session at 16,915.07. The Standard & Poor 500 (S&P 500) too dropped 0.4% to finish at 1,964.68. The tech-laden Nasdaq Composite Index closed at 4,391.46; declining almost 1.4%. The fear-gauge CBOE Volatility Index (VIX) surged 8.1% to settle at 12.59. Total volume for the day was roughly 5.84 billion shares, slightly more than last month’s average of 5.79 billion. Decliners outpaced advancing stocks on the NYSE. For 67% stocks that declined, 30% advanced.
 
Benchmarks opened lower on Thursday following reports that Banco Espírito Santo SA, one of Portugal’s biggest banks, missed payments on some of its short-term debts. Shares of Banco Espírito Santo were suspended from trading. Shares of the bank plunged 17.2% before getting suspended. The share lost 46% year to date.
 
Shares of Espirito Santo Financial Group, the largest shareholder in Banco Espirito Santo SA, were suspended from trading. The controlling shareholder attributed “ongoing material difficulties” at its parent company Espírito Santo International to be reason behind this suspension.
 
This sparked off concerns about the financial health of Portugal’s top-listed bank. This incident also sent shock waves across European markets, reviving memories of the region’s debt crisis. Major European indexes such as Portugal's PSI, Germany's DAX, Spain's IBEX and Italy's FTSE MIB dropped 4.2%, 1.5%, 2.0% and 1.9%, respectively.
 
Investors also reduced their exposure to equities after overnight news on China’s trade data turned out to be discouraging. China’s exports increased 7.2% year-over-year in June, up from previous month’s growth of 7.0%. Imports also grew by 5.5% year-over-year in June, versus a 1.6% fall in May. However, the rise in both export and import figures were less than most analysts’ expectations. China’s trade surplus in June decreased to $31.6 billion from May’s $35.9 billion. In May, China’s trade surplus was at a five-year high. Additionally, a decline in Japan’s Core Machinery Orders by 19.5% in May also added to bearish sentiment.
 
On the domestic front, the number of people who applied for unemployment benefits in the first week of July decreased to a seven-year low. The U.S. Department of Labor reported yesterday that the advance figure for seasonally adjusted initial claims dropped 11,000 to 304,000 in the week ending July 5. The 4-week moving average also decreased to 311,500 from previous week’s unrevised average of 315,000.
 
This drop in claims for unemployment benefits came in after the U.S. Bureau of Labor Statistics reported last week that total nonfarm payroll employment jumped 288,000 in June. The unemployment rate also dropped to 6.1%, touching the lowest level since September 2008.
 
The U.S. Department of Commerce announced that the US wholesale inventories rose 0.5% in May following a downwardly revised 1.0% growth in April. This is lower than the consensus estimate of an increase of 0.7%.
 
Among individual stocks, Lumber Liquidators Holdings, Inc. (LL - Snapshot Report) was among the day’s biggest decliners in percentage terms. Shares of the company plunged 21.5% after the company reduced its earnings outlook for the year. The company projected earnings per share for 2014 to be in the range of $2.65 to $3.00, down from the earlier projection of $3.25 to $3.60 after the market closed on Wednesday.
 
Nine out of 10 sectors of the S&P 500 ended in the red. The SPDR S&P Homebuilders (XHB) declined almost 1.7%, the highest among the S&P 500 sectors. Key housing stocks from the sector such as DR Horton Inc. (NYSE:(DHI - Analyst Report), Toll Brothers Inc. (NYSE:(TOL - Analyst Report), PulteGroup, Inc. (NYSE:(PHM - Analyst Report), Lennar Corp. (NYSE:(LEN - Analyst Report) and KB Home (NYSE:(KBH - Analyst Report) decreased 0.1%, 1.0%, 0.9%, 0.8% and 2.6%, respectively.
 
The Energy Select Sector SPDR (XLE) declined about 1.0%, the second largest loser among the S&P 500 sectors. Key energy stocks such as Exxon Mobil Corporation (XOM - Analyst Report), Chevron Corporation (CVX - Analyst Report), Schlumberger Limited (SLB - Analyst Report), Halliburton Company (HAL - Analyst Report) and Transocean Ltd. (RIG - Analyst Report) dropped 0.9%, 0.9%, 1.3%, 1.9% and 1.3%, respectively.

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