News of MF Global filing for Chapter 11 bankruptcy protection and apprehensions over the European deal dragged the markets down on Monday bringing to a close an otherwise robust month of gains. While the markets enjoyed their best month in decades, yesterday’s losses resulted in the Dow registering its biggest one-day percentage fall in four weeks.
The Dow Jones Industrial Average (DJIA) plummeted 276 points or 2.3% to settle at 11,955.01. The Standard & Poor 500 (S&P 500) plunged 2.5% to finish the day at 1,253.30. The Nasdaq Composite Index dropped 1.9% and closed at 2,684.41. The fear-gauge CBOE Volatility Index (VIX) jumped 22% to settle marginally below 30. On the New York Stock Exchange, NYSE Amex and Nasdaq, consolidated volumes were 7.7 billion shares. On the NYSE, for every four stocks that moved down, only one stock managed to move up.
On Monday, the Dow suffered a heavy fall and none of its 30 Dow components ended with gains. Apart from the financial stocks in the blue-chip index, the declines were led by Alcoa, Inc. (NYSE:AA), Boeing Co. (NYSE:BA), Chevron Corporation (NYSE:CVX), Walt Disney Co. (NYSE:DIS), Hewlett-Packard Company (NYSE:HPQ) and Exxon Mobil Corporation (NYSE:XOM) and they plummeted 7.0%, 3.5%, 4.2%, 3.7%, 4.8% and 4.2%, respectively. The Dow’s fall came on the last day of the month that marked the benchmark’s strongest gains in almost two decades.
For the month, the Dow surged 9.5% and recorded its third-largest monthly percentage gain. The blue-chip index also recorded its best monthly performance since October 2002. The S&P 500 logged a gain of 11% for October, and for the first time this month the index managed to escape two consecutive days of fall since October 2006. This was the index’s best monthly performance since 1991. With 11% gain in October, Nasdaq logged the best month since September 2010.
The gains for the month were largely attributable to developments on the European front. Though the month had started on a somber note following the downgrade of Italian and Spanish debt ratings and lingering concerns about the debt crisis, investors incrementally pinned their hope on European leaders working towards a solution which helped ease concerns. Optimism ahead of the European Council Meeting and the progress made thereafter further acted as catalysts for the momentum. However, the month ended on a sour note as onlookers begin to raise questions about the deal since very few details of the plan have been disclosed.
The agreement on the European debt crisis that was concluded last Wednesday by European leaders including the continent’s heads of state, the International Monetary Fund (IMF) and bankers during the European Council summit agreed on the need to recapitalize European banks and Germany agreed to support the initiative for leveraging the bailout fund. However, the lack of details about the plan looks has led to doubts over its efficacy. Additionally, an Italian bond auction on Friday, the 3-year, 8-year and 10-year notes saw dreary demand that dragged the Italian 10-year notes to a challenging figure of about 6%. An announcement by Greece's Prime Minister George Papandreou about a referendum to approve the decisions of the European Union summit also spurred a sell of.
In other news, trading in MF Global Holdings Ltd. (NYSE:MF) was halted after it filed for U.S. Chapter 11 bankruptcy protection. The futures broker has now became the largest US casualty of the euro-zone turmoil since it had invested heavily in European sovereign debt. Other financial stocks also crashed lower and several banks were compelled to bear write-offs on the value of their European bonds. Among the financial shares, Bank of America Corp (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc. (NYSE:C), Goldman Sachs Group, Inc. (NYSE:GS) and UBS AG (NYSE:UBS) plunged 7.1%, 5.3%, 7.5%, 5.5% and 8.8%, respectively.
On the economic front, The Chicago Purchasing Managers' Index decreased to 58.4 points in October, from a 60.4 reading in September, and was lower than expectations of a reading of 58.9.