Spooked by European financial concerns and a sharp decline in commodity prices, benchmarks ended in negative territory for the third-straight day. Borrowing costs recorded euro-era highs and domestic economic data was not strong enough to negate lingering concerns.
The Dow Jones Industrial Average (DJIA) plunged 1.1% to settle the day at 11823.48. The Standard & Poor 500 (S&P 500) also inched down 1.1% to close yesterday’s trading session at 1211.82. The Nasdaq Composite Index slumped 1.6% and finished at 2539.31. The fear-gauge CBOE Volatility Index (VIX) was up 2.5% to finish at 26.04. Decliners once again outnumbered advancing stocks on the New York Stock Exchange (NYSE), with only 28% of the stocks moving up, compared to 70% for the decliner. Consolidated volumes on the NYSE, Amex and Nasdaq, were 7.8 billion shares.
The Dow declined to a two-week low and only 6 of the 30 Dow components could close in the green yesterday. Verizon Communications Inc. (NYSE:VZ) managed to end flat, while the remaining 23 stocks of the blue-chip index had to settle in the red zone. The declines were led by Caterpillar Inc. (NYSE:CAT), Bank of America Corporation (NYSE:BAC), Cisco Systems, Inc. (NASDAQ:CSCO), Hewlett-Packard Company (NYSE:HPQ) and United Technologies Corp. (NYSE:UTX) and they were down 4.4%, 1.7%, 2.7%, 1.6%, 1.4%, respectively.
Since the beginning of this week, financial markets have been facing several headwinds. Last Friday, markets closed with investors drawing optimism from the European accord that all euro-members apart from Britain agreed to implement. However, markets were dealt a serious blow on Monday after ratings agencies Fitch Ratings and Moody's Investors Service criticized the same deal. Additionally, on Tuesday, the Federal Reserve acknowledged that the global financial economic scenario can significantly impact US markets. Sentiments were dampened further when German Chancellor Angela Merkel yesterday voiced her opposition against hiking the lending power of the euro-zone bailout fund.
With steep continued declines in the euro, investors know that debt woes are well and truly alive. Yesterday, the euro dropped to its lowest point since January this year, settling below $1.30. With yesterday’s drop, the euro is now down 3% over the past three days. On the last few occasions, the greenback has been gaining an upper hand over the rest of the major currencies, and this has also adverse impacted the pricing of the commodities.
Gold futures slumped 4.6% to settle at a five month low of $1,584.30 an ounce. The yellow-metal is now down 9.2% for the month. Copper prices slumped 4.7% and silver crashed down 7.4%. The crude prices also suffered a heavy battering and crude-oil futures slouched 5.2% to settle at $94.95 per barrel.
These developments took a heavy toll on metal and energy shares. Coming to metal stocks, Southern Copper Corp. (NYSE:SCCO), Thompson Creek Metals Company Inc. (NYSE:TC), Newmont Mining Corp. (NYSE:NEM), Western Copper and Gold Corporation (AMEX:WRN) and Cliffs Natural Resources Inc. (NYSE:CLF) plunged 1.5%, 2.0%, 2.4%, 2.5% and 2.6%, respectively. As for energy shares, Exxon Mobil Corporation (NYSE:XOM), Marathon Oil Corporation (NYSE:MRO), Hess Corporation (NYSE:HES) and Occidental Petroleum Corporation (NYSE:OXY) dropped 1.4%, 2.4%, 4.4% and 3.6%, respectively.
Borrowing costs also soared higher across the Atlantic, hinting at increasing fears of a sovereign debt crisis. The five-year bond yield of Italy rose to 6.5%, a euro-era high. It exceeded the previous high of 6.3%, recorded last month. Additionally, the 10-year bond yield was once again back above unsustainable levels, at 7.2%. Not only Italy, but France, Germany and Spain have also been affected by incremental borrowing costs.
Coming back to the domestic front, the U.S. Bureau of Labor Statistics reported that import prices in the US increased 0.7% in November, and export prices edged up 0.1% in November. Consensus estimates for the import prices was pegged at an increase of 1%. The report also stated: “Import prices rose 0.7 percent in November following declines of 0.5 percent, 0.1 percent, and 0.4 percent the three previous months. The November advance is the largest monthly increase since a 2.6 percent rise in April,” and added, “Export prices advanced 0.1 percent in November after a 2.1 percent drop the previous month. In November, a rise in agricultural prices more than offset falling nonagricultural prices”.
Separately, the National Association of Realtors said due to the double counting of the data on sales of previously owned homes, figures will be revised downwards.