Markets reversed gears on Monday and receded into negative territory after the European accord concluded on last Friday faced criticism from Fitch Ratings and Moody's Investors Service. Tech-giant Intel also contributed to weak investor confidence after the company projected revenues lower than its earlier projections.
The Dow Jones Industrial Average (DJIA) plunged 1.3% to close the day at 12,021.39. The Standard & Poor 500 (S&P 500) slumped 1.5% to finish the day’s trading at 1,236.47. The Nasdaq Composite Index settled substantively lower at 2,612.26, declining by 1.3%. However, the fear-gauge Volatility Index (VIX) showed that investor concerns had receded somewhat, dropping 2.7% to settle at 25.67. Decliners outpaced advancing stocks on the New York Stock Exchange (NYSE). For 77% of the decliners, merely 20% stocks managed to climb higher with the remaining unchanged. Total volume on the NYSE was 3.64 billion shares.
The Dow had sunk by 243 points before final hour trading helped to limit the losses. However, final hour trading was not strong enough to save 28 of the 30 Dow components from dropping into the red zone. Walt Disney Co. (NYSE:DIS) and McDonald's Corp. (NYSE:MCD), which gained 0.3% and 0.5%, respectively, were the only Dow components that managed to grab a seat in the green. Tech-giant Intel Corporation (NASDAQ:INTC) suffered the second-heaviest fall among the Dow components, slumping by 4.0%. Intel is the latest to fall prey to the disk-drive shortage situation and the stock fell after the company trimmed its fourth quarter revenue projections.
Intel’s reduced sales forecast affected the broader rally and the tech sector took a battering. The PHLX Semiconductor (SOX) index dropped 2.8% and other tech stocks like Advanced Micro Devices, Inc. (NYSE:AMD), Texas Instruments Inc. (NYSE:TXN), Broadcom Corp. (NASDAQ:BRCM), International Business Machines Corp. (NYSE:IBM) and Hewlett-Packard Company (NYSE:HPQ) plunged 4.3%, 2.7%, 3.4%, 1.2% and 1.6%, respectively.
Once again, cross-Atlantic concerns dampened the sentiment on the home front. Just as markets were buoyed by positive developments from the other side of the Atlantic last week, which concluded with the European deal, the regions’ concerns yet again afflicted the benchmarks in the US. Friday’s European deal, where almost all European Union (EU) nations but Britain agreed to adhere to strict budgetary measures, was criticized by rating agencies Fitch Ratings and Moody's Investors Service.
Fitch believes that Europe faces a looming economic downturn. The rating agency criticized leaders’ failure to lay out a “comprehensive” resolution the sovereign debt crisis of the region. The agency said: “It seems that a ‘comprehensive solution’ to the current crisis is not on offer”. “The lack of a comprehensive solution has increased short- term pressure on euro-zone sovereign credit profiles and ratings… It means the crisis will continue at varying levels of intensity throughout 2012 and probably beyond, until the region is able to sustain broad economic recovery,” the agency added.
Meanwhile, Moody’s also disapproved of the European accord that seemed impressive enough to contribute to the markets’ rally on Friday. The rating agency sees the European crisis treading a “critical and volatile stage," and said the pact would not reduce the chances of a sovereign ratings downgrade of the Euro nations. Moody’s stated: "The crisis is in a critical and volatile stage, with sovereign and bank debt markets prone to acute dislocation which policymakers will find increasingly hard to contain…Moreover, the longer the incremental approach to policy persists, the greater the likelihood of more severe scenarios, including those involving multiple defaults by euro area countries and those additionally involving exits from the euro area”.
On a sector-wise basis, financial and the energy sectors suffered the most. The Financial Select Sector SPDR (XLF) fund was down 2.4% and stocks like Bank of America Corporation (NYSE:BAC), Morgan Stanley (NYSE:MS), Citigroup, Inc. (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM) and The Goldman Sachs Group, Inc. (NYSE:GS) plunged 4.7%, 6.1%, 5.4%, 3.4% and 3.4%, respectively. As for the energy sector, stocks which felt the heat included Marathon Oil Corporation (NYSE:MRO), Suncor Energy Inc. (NYSE:SU), Occidental Petroleum Corporation (NYSE:OXY) and ConocoPhillips (NYSE:COP) and they were down 3.6%, 3.5%, 2.8% and 2.0%, respectively.
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