Stock Market News for May 5, 2010

Spreading concerns about European finances roiled global markets Tuesday, sending every major index from Australia to United States sharply lower even as speculation grew that financially strapped Spain would be the next to need a bailout.  Concerns that Beijing was moving too fast to contain the country’s rapid economic growth also played a part in the market’s slide.

Stocks had their sharpest drop in three months as investors grew anxious about European countries’ ability to contain the debt crisis.  The euro fell to its lowest against the dollar in a year on contagion fears.  However, some market participants noted the pullback did not surprise them as stocks, they said, were due for a retreat.  The sudden flight to safe havens sent interest rates on government debt sharply lower.  The yield on the benchmark 10-year Treasury note fell to 3.598% from 3.69% late Monday.

Although the European Union and the International Monetary Fund agreed over the weekend to inject a $146 billion lifeline into Greece’s ailing finances, investors questioned Greece’s ability to cut its budget deficit to 3% by 2014.  How cash-strapped European nations would bailout Portugal or Spain should these countries face a situation similar to Greece also concerned investors.    

The blue-chip Dow average plunged 225 points, wiping off Monday’s 143-point advance, as traders cut risky positions and rushed to safer bets.  The tech-heavy Nasdaq composite index plunged 74.49 points, or 3%, to 2,424.25.  The broader S&P 500 index fell 28.66 points, or 2.4%, to 1,173.60.  On the New York Stock Exchange volume jumped to 1.53 billion shares, with declining issues ahead of those that advanced in price by about five to one.  The market’s measure of volatility, the CBOE Vix, surged 18.1% to 23.84.

Earnings reports and economic posts, however, continued to indicate that the economic recovery was gaining momentum.  Better-than-expected earnings from Pfizer (NYSE:PFE - Analyst Report) and Merck (NYSE:MRK - Analyst Report) sent shares in those companies up 1.5% and 2.1%, respectively, and helped contain Dow’s retreat. 

Crude prices fell $3.45 to $82.74, ending its four-day rally which had been fueled by traders assessing the long-term supply impact of the BP (NYSE:BP - Analyst Report) oil spill in the Gulf. 

A strong greenback sent commodity prices lower, sending shares in companies that derive a major part of their revenue from overseas markets lower.  Hence, the DJIA's 27 declining components were led by drops in Alcoa (NYSE:AA - Analyst Report) of 4.3%, Caterpillar (NYSE:CAT - Analyst Report) of 4.6%, Hewlett-Packard (NYSE:HPQ - Analyst Report) of 3.9%, and Cisco (NASDAQ:CSCO - Analyst Report) of 3.6%.

Fed-speak today includes: Eric Rosengren and Jeffrey Lacker.  Companies reporting their quarterly numbers include: Anheuser-Busch InBev (NYSE:BUD - Snapshot Report), CBS (NYSE:CBS - Analyst Report), Garmin (NASDAQ:GRMN - Analyst Report), Time Warner (NYSE:TWX - Analyst Report), Transocean (NYSE:RIG - Analyst Report) and Qwest (NYSE:Q).

Read the full analyst report on PFE

Read the full analyst report on MRK

Read the full analyst report on BP

Read the full analyst report on AA

Read the full analyst report on CAT

Read the full analyst report on HPQ

Read the full analyst report on CSCO

Read the full analyst report on BUD

Read the full analyst report on CBS

Read the full analyst report on GRMN

Read the full analyst report on TWX

Read the full analyst report on RIG

Read the full analyst report on Q