US stocks suffered their worst loss in two weeks yesterday after comments from Germany’s finance minister caused investors to fear Europe’s solution to its debt crisis may not come fast enough.
The S&P index had risen for two straight weeks for the first time since July, riding a wave of euphoria built on optimism that European leaders had a newfound commitment to tackle a crisis that threatened financial stability and global growth.
The rapid rally left the market susceptible to swift declines. German Finance Minister Wolfgang Schaeuble, speaking of a 23 October European Union summit on the debt crisis, tempered enthusiasm, saying, “we won’t have a definitive solution this weekend.”
US bank earnings also contributed to the selling pressure. Wells Fargo & Co shares fell 8.4 per cent to $24.42 after the US lender’s financial results fell short of expectations.
“The German Finance Minister basically came out and sort of ruined the expectation that a grand plan was coming along, that some sizeable fund was being put together to recapitalize European banks,” said Stephen Massocca, fund manager with Wedbush Morgan in San Francisco.
“Depending on the development there, we could technically get back down to the low end of the trading range, at about 1,100 on the S&P.”
With that in mind, investors rushed to seek protection in the options market against losses. The CBOE Volatility index VIX, Wall Street’s so-called fear gauge, rose 18.2 per cent to 33.39, its highest one-day jump since August. The VIX is a 30-day risk forecast of stock market volatility conveyed by S&P 500 index options; it generally moves inversely to the S&P benchmark.
The Dow Jones industrial average was down 246.58 points, or 2.12 per cent, at 11,397.91. The Standard & Poor’s 500 Index was down 23.72 points, or 1.94 per cent, at 1,200.86. The Nasdaq Composite Index was down 52.93 points, or 1.98 per cent, at 2,614.92.
Trading volume was light, with just 6.87bn shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq for the day, below the year’s daily average so far of about 8bn.
After the closing bell, IBM reported third-quarter revenue that met expectations. The tech company ended 2 per cent lower at $186.59 during regular trading, but in after-hours action IBM shares fell 3.6 per cent more to $179.81 after reporting results.