European banking scare sends stocks lower

 

The Washington Post

By Ken Sweet July 10

NEW YORK — Stocks fell Thursday as worries about the soundness of a European bank spooked U.S. investors, prompting them to sell stocks and snap up less risky assets, such as gold and governments bonds.
Fears emerged overnight about the financial stability of Espirito Santo International, a holding company that is the largest shareholder in a group of firms, including the parent of Portugal’s largest bank, Banco Espirito Santo.
Espirito Santo International reportedly missed a debt payment this week and was cited for accounting irregularities — similar to issues that sparked Europe’s debt crisis four years ago. The bank troubles had traders and investors talking about a new European debt crisis.
The stock sell-off started Thursday in Europe and spread to the United States, where the Dow Jones industrial average plunged as much as 180 points within the first half-hour of trading.
But anxiety subsided, and the U.S. market clawed back in afternoon trading. While the Dow never fully bounced back, its decline at the close was roughly half of what it was at the beginning of the session.
“Today’s news did reignite some of those contagion fears,” said Ryan Larson, head of equity trading for RBC Global Asset Management.
Portugal is one of the smaller euro-zone economies and, like Greece and Ireland, needed an international rescue in 2011 during the continent’s debt crisis. A three-year economic recovery program was supposed to have straightened out its finances.
That debt crisis in Europe was largely responsible for the U.S. stock market’s last decline of 10 percent or more, known as a “correction” in Wall Street parlance. Investors feared that Europe’s crisis would spread to the United States, which was starting to recover from its own financial trauma.
The Dow fell 70.54 points Thursday, or 0.4 percent, to 16,915.07, erasing most of Wednesday’s advance.
The Standard & Poor’s 500-stock index fell 8.15 points, or 0.4 percent, to 1,964.88, and the Nasdaq composite fell 22.83 points, or 0.5 percent, to 4,396.20.
Traders and market strategists pointed to a couple of reasons why stocks didn’t continue falling in the United States.
First, because it has been a relatively quiet week for Wall Street, with little economic data and only a couple of companies reporting quarterly results, any negative news was likely “met with overreaction,” Larson said.
“After participants had time to step back and assess, many realized the U.S. is in a relatively good spot compared with [Europe],” he said.
Second, even with the U.S. market trading near all-time highs, many investors are sitting on large amounts of cash. Any noticeable fall in stock prices could draw some of that money in.
“Generally, people are willing to put money into this market when the opportunity presents itself,” said Erik Davidson, deputy chief investment officer of Wells Fargo Private Bank, which manages $170 billion in assets.
Investors did seek out some protection Thursday. Bond prices and gold rose as investors moved money into those traditional havens. The yield on the 10-year Treasury note fell from 2.55 percent late Wednesday to 2.54 percent. Gold rose $14.90, or 1.1 percent, to $1,339.20 an ounce.
— Associated Press
http://www.washingtonpost.com/business/economy/european-banking-scare-sends-stocks-lower/2014/07/10/6c165596-0894-11e4-a0dd-f2b22a257353_story.html