US stocks tumbled yesterday, as concerns about Europe returned to the forefront after major credit ratings agencies warned that European leaders had not done enough to tackle the region’s debt crisis.
The decline was broad. All ten S&P industry groups ended in negative territory, and most dropped more than one per cent. Banks took the biggest hit, while technology shares also fell after Dow component Intel, the world’s largest chip maker, lowered forecasts for quarterly revenue.
After initial elation on Friday over an agreement reached at an EU summit to enforce tighter budget control over the Eurozone, the mood turned yesterday as more doubts arose over whether the measures would be enough to quell the debt crisis.
“The pact that was agreed upon by European officials still has a long way to go in order to come to fruition, and that leaves the market open to riot,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott.
Fitch Ratings said failure by European Union leaders to come up with a “comprehensive” solution to the region’s debt crisis has increased short-term pressure on debt ratings of Eurozone countries.
Investors in Europe gave their verdict by spurning Spanish and Italian debt, causing borrowing costs to rise.
The yield on Italy’s benchmark 10-year note again came within range of seven per cent, seen as a danger zone, but recovered to close at 6.6 per cent.
“We’re seeing that sentiment surface in Italian bond yields, and that suggests the market is still highly sceptical of any solution to the risk of significant default that could be brought forward in the coming days,” Luschini said.
US banks were among the worst performers on renewed concern that problems in Europe’s financial system could spill over to US institutions. The S&P financial sector was down 2.6 per cent while Bank of America slumped 4.7 per cent and JPMorgan Chase lost 3.4 per cent.
Sentiment over Europe had been more positive, helping the S&P to a second week of gains last week, but volatility remains high as markets continue to be dictated by headlines.
The Dow Jones industrial average was down 162.87 points, or 1.34 per cent, at 12,021.39. The Standard & Poor’s 500 Index was down 18.72 points, or 1.49 per cent, at 1,236.47.
The Nasdaq Composite Index was down 34.59 points, or 1.31 per cent, at 2,612.26.