Stock Market News for May 24, 2011

Global events weighed on investor sentiment to drag US indices lower on Monday. While rising concerns about the euro-zone debt situation significantly dampened benchmarks, disappointing manufacturing data from China stepped in to further pressurize the indices amidst the lack of any domestic data.

All of the 30 components that make up the Dow Jones Industrial Average (DJIA), except one, were in the red and the index declined 1.1% to close at 12,381.26. Only McDonald's Corp. (NYSE:MCD - Analyst Report) was able to climb up among the 30 components in the Dow, moving up 0.2%. The Standard & Poor 500 (S&P 500) shed 1.2% to finish the day at 1,317.37 and was also below its 50-day moving average since April 19. The index was also at its lowest level since April 19th. The tech-laden Nasdaq Composite Index plunged 1.6% to 2,758.90. The fear-gauge CBOE Volatility Index (VIX) gained 2.6% to settle at 17.88. On the New York Stock Exchange, Amex and Nasdaq, consolidated volumes were at 6.44 billion shares compared with last year's estimated daily average of 8.47 billion shares. On the NYSE, for every four declining stocks, only one stock managed to edge up.

The benchmarks were dragged lower as euro-zone debt worries gained strength and it is feared that debt concerns might not be restricted to Greece alone. Late on Friday, credit rating agency Fitch had lowered its sovereign debt rating on Greece by three notches to B+ from BB plus, citing the country’s inability to resolve the crisis in its public finances. Earlier last week, European Union officials had suggested there were chances of a “soft restructuring” of Greek debt. With this latest development, these fears have gained strength with Greece likely having to restructure its debt and concerns over Spain and Italy adding to euro-debt woes.

Fresh concerns were likely to arise about the country’s debt situation after the completion of elections in the nation. Analysts opined that after the possible defeat of the Socialists, the Popular Party might focus even more on elevated debt levels than what was expected earlier. As the elections conclude, the results indicate voters are against additional austerity measures and the Socialists have suffered a heavy defeat. Subsequently, as these fears come true, this will automatically add to lingering euro-debt worries and subsequently US markets are most likely to feel the burden.

Italy, a country which had been relatively unaffected by euro-zone debt concerns, has now joined the league of troubled economies to fuel fears and add to the pressure on markets. Standard & Poor’s Ratings Services downgraded its outlook for Italy’s A+ sovereign credit rating to ‘negative’ from ‘stable’ citing a potential ‘political gridlock’. Gary Jenkins, head of fixed income at Evolution Securities, commented: “Any concern that Italy’s large debt burden is not on a downward trajectory would be of concern not only for Italy, but for the euro area as a whole as in a worst-case scenario Italy could probably be characterized as too big to bail”. Meanwhile, Italian Treasury denied any political gridlock and said it would “intensify” reforms. Led by Italian Prime Minister, Silvio Berlusconi, the government is said to have been taking revenue-raising measures and other steps to balance its budget by 2014.

Shifting the focus from Europe, the other global event that dampened the mood of domestic investors was the sharp decline in China’s manufacturing index. According to a survey conducted by HSBC, the China Manufacturing Purchasing Managers' Index declined to a 10-month low of 51.1 this month, compared with 51.8 in April. US listed Chinese shares took a beating as the index tracking U.S.-traded Chinese companies shed 2.2%. Among shares, China Eastern Airlines Corp. Ltd. (NYSE:CEA - Analyst Report), China Southern Airlines Co. Ltd. (NYSE:ZNH - Analyst Report), China Mobile Limited (NYSE:CHL - Snapshot Report), Guangshen Railway Co. Ltd. (NYSE:GSH - Analyst Report), Sinopec Shanghai Petrochemical Co. Ltd. (NYSE:SHI - Analyst Report), Yanzhou Coal Mining Co. Ltd. (NYSE:YZC - Snapshot Report) dipped 2.0%, 2.0%, 1.9%, 0.7%, 1.5% and 4.0%, respectively.

Crude oil prices declined once again as light, sweet crude futures for June delivery dropped $2.40 to close at $97.77 per barrel on the New York Mercantile Exchange. Among energy shares, Chevron Corp. (NYSE:CVX - Analyst Report), Exxon Mobil Corporation (NYSE:XOM - Analyst Report), ConocoPhillips (NYSE:COP - Analyst Report), Marathon Oil Corporation (NYSE:MRO - Analyst Report) and Transocean Ltd. (NYSE:RIG - Analyst Report) dropped 1.2%, 1.1%, 1.8%, 1.4% and 3.3%, respectively.

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