Benchmarks snapped their three-day winning streak as investors grew anxious about Europe’s lingering debt crisis that is now threatening the global economy. Commodity shares dragged down indices as energy and raw materials lost their sheen after a steep drop in their prices.
The Dow Jones Industrial Average (DJIA) dropped 1.6% to settle at 11,010.90. The Standard & Poor 500 (S&P 500) was down 2.1% and finished the day at 1,151.06. The Nasdaq Composite Index slid 2.2% and closed at 2,491.58. The fear-gauge CBOE Volatility Index (VIX) jumped to hover above 41. On the New York Stock Exchange, the American Stock Exchange and Nasdaq, consolidated volumes were roughly 7.96 billion shares, which was in line with this year's average. On the NYSE, for every stock that moved up, around five were on the losing side.
A bad day for the blue-chip index saw all of its 30 components ending in the red. Of the 30 Dow components, Alcoa, Inc. (NYSE:AA), Bank of America Corporation (NYSE:BAC), Caterpillar Inc. (NYSE:CAT), EI DuPont de Nemours & Co. (NYSE:DD), Walt Disney Co. (NYSE:DIS), JPMorgan Chase & Co. (NYSE:JPM), The Coca-Cola Company (NYSE:KO) and 3M Co. (NYSE:MMM) led the declines, dropping 4.9%, 4.9%, 3.3%, 3.2%, 2.2%, 3.5%, 2.2% and 3.5%, respectively.
European debt concerns once again dampened investor sentiment after remarks from German Chancellor Angela Merkel overshadowed recent positive developments which had generated hopes of a quick solution to Greek debt issues. Angela Merkel was of the opinion that Greece’s bailout package must be renegotiated. Meanwhile, a section of European leaders favored banks taking up larger chunk of the loss on the Greek bonds. However, European Central Bank and France voiced their protest against such a step.
Additionally, a European Commission official confirmed that international lenders, comprising the European Commission, the European Central Bank and the International Monetary Fund, popularly known as the “Troika, will head towards Athens to inspect Greece’s austerity plans. He said: "The troika...have decided to resume the mission to Greece, with a view to resuming policy discussions... from tomorrow". Finance ministers from the euro zone will meet in October to discuss Greek finances and the assistance to Athens, the official added.
Meanwhile, Germany's parliament will vote on Thursday on a measure that would give a European rescue fund more powers to fight the region's debt crisis. Finland's parliament approved the proposal Wednesday, reducing some of the uncertainty over the debt crisis issue which has been dogging financial markets since late July.
Separately, Finland voted in favor of approving the changes to European Financial Stability Facility (EFSF), the bailout fund that aims at boosting troubled nations like Greece, Ireland, Portugal, Spain and also Italy. The EFSF intends to allow sovereign debt to be purchased, thereby shoring up the European banks. Germany is now set to vote on the matter on Thursday and till now eight out of 17 euro zone members have voted in favor of such an expansion.
Commodity stocks took a beating as investors rushed to book their profits after materials began losing their shine. Gold slid to $1,620 an ounce, while copper prices dropped 5.6% and crude oil was down to $81.21 per barrel, losing 3.8%. Among material stocks, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), Cliffs Natural Resources Inc. (NYSE:CLF), Southern Copper Corp. (NYSE:SCCO) and Newmont Mining Corp. (NYSE:NEM) declined by 7.2%, 8.4%, 7.1% and 3.0%, respectively.
On the economic front, the Department of Commerce reported a 0.1% decline in new orders for manufactured durable goods in August to $201.8 billion. The report stated: “This decrease, down two of the last three months, followed a 4.1 percent July increase. Excluding transportation, new orders decreased 0.1 percent. Excluding defense, new orders decreased 0.1 percent.