Fear returned to Wall Street yesterday, sending the S&P 500 to another four per cent decline, triggered by worries that Europe’s debt crisis could engulf French banks and spill onto the US financial sector.
Trading was once again marked by sharp moves on heavy volume. For a fifth straight day, the Dow industrials fluctuated in a range of more than 400 points.
“What you’re seeing is a very short-term, direction-oriented market,” said Eric Kuby, chief investment officer of North Star Investment Management Corp in Chicago.
Worries about the strength of French lenders, including Societe Generale, triggered a selloff in European and US banks. Rumors about SocGen’s financial health, which the bank denied, sent its shares tumbling 14.7 per cent.
An index of European banks dropped 6.7 per cent and the KBW index of US bank stocks slid 4.9 per cent as fear grew of a possible contagion of any French crisis. Bank of America Corp lost 10.9 per cent to $6.77 and Goldman Sachs slid more than 10 per cent to $110.34.
The Dow Jones industrial average slid 520.29 points, or 4.63 per cent, to 10,719.48. The S&P 500 fell 51.81 points, or 4.42 per cent, to 1,120.72. The Nasdaq Composite dropped 101.47 points, or 4.09 per cent, to 2,381.05.
Yesterday’s drop came a day after stocks rallied on the Federal Reserve’s pledge to keep interest rates near zero for at least two more years.
Even after Tuesday’s snap-back rally, the S&P 500 is down almost 18 per cent from its 2011 closing high set 29 April. The losses came against the backdrop of recent weak US economic data, the US losing its triple-A credit rating from Standard & Poor’s and the inability of lawmakers to address worries that another recession may be on the way.
About 15 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, almost double the year’s estimated daily average of 7.8bn.
Volume once again spiked in the last hour of trading, and the market closed near its session lows.
Of late, overleveraged investors with losses on their books have been forced to sell shares near the end of the day.
“Between 3 and 3:20 (p.m.) you have people getting margin calls, and on days like today there’s some nervousness about what those calls will look like,” said Andrew Frankel, co-president of Stuart Frankel & Co in New York, referring to the volatility of the final hour of trading.