Benchmarks took a battering on Monday following uncertainty about the outcome of the Italian elections and a revival of euro zone concerns. The instability in the Italian government indicates European debt problems might resurface which in turn could weaken the global economy. The major indices logged their worst day since November. All ten S&P 500 industry groups ended in the red. Energy stocks were the biggest losers.
The Dow Jones Industrial Average (DJI) lost 1.6% to close the day at 13,784.17. The S&P 500 decreased 1.8% to finish yesterday’s trading session at 1,487.85. The tech-laden Nasdaq Composite Index declined 1.4% to end at 3,116.25. The fear-gauge CBOE Volatility Index (VIX) jumped 34% to settle at 18.99. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 7.27 billion shares, well above the daily average of 6.45 billion shares for 2012. Declining stocks outnumbered the advancing stocks. For the 24% that advanced, 74% declined.
Markets started yesterday’s trading session on a positive note and the S&P 500 advanced as much as 0.7% in morning trade. But skepticism about the Italian political situation and fears of a reemergence of the euro zone crisis dragged the indices into the negative. The S&P 500 closed below 1,500 for the first time since February 4. The fear-gauge CBOE VIX surged by 34%, its highest increase since August 18, 2011.
Uncertainty over the Italian elections dampened investor sentiment yesterday. The result of the elections will have a major impact on the European financial scenario since Italy is one of the region’s largest economies. According to three TV forecasts, the centre-left coalition has a marginal lead over centre-right, lead by ex-Prime Minister Silvio Berlusconi. If any of the two blocs is unable to gain a clear majority in the Senate, fresh elections would have to be held. This could trigger fears of Italy defaulting on its debt.
Meanwhile, the final day to decide on reduction of US government spending as well as taxes is Friday. If by then, Democrats and Republicans fail to meet on common ground, federal spending will be decreased by $85 billion a month for seven months and $1.2 trillion over nine years. Spending cuts worth $85 billion will adversely affect major sectors like defense, education, and healthcare. President Barack Obama said, “Companies are preparing layoff notices. Families are preparing to cut back on expenses. ...".
On the earnings front, shares of Lowe's Companies, Inc. (NYSE:LOW) dipped 4.8% in-spite of posting robust earnings and revenues. The company’s earnings and revenues beat the Street’s estimates but missed on the outlook front. For fiscal 2013, the company guided earnings per share to $2.05 versus the Street’s estimates of $2.10. The company said it has taken steps to cut costs in terms of lower hiring, closing locations and investing more in its online business.
Home building stocks took a hammering yesterday and the SPDR S&P Homebuilders (XHB) lost 3.5%. Stocks such as The Home Depot, Inc. (NYSE:HD), Lumber Liquidators Holdings Inc (NYSE:LL), M.D.C. Holdings, Inc. (NYSE:MDC), The Ryland Group, Inc. (NYSE:RYL) and D.R. Horton, Inc. (NYSE:DHI) dropped 2.5%, 6.7%, 4.5%, 5.4% and 4.2%, respectively.
Energy stocks declined the most among the top ten industry groups in the S&P 500. The Energy Select Sector SPDR (NYSEARCA: XLE) lost 2.6%. Stocks such as Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), Marathon Oil Corporation (NYSE:MRO), Hess Corp. (NYSE:HES) and Suncor Energy Inc. (USA) (NYSE:SU) declined 1.7%, 2.1%, 5.1%, 3.5% and 2.3%, respectively.