Stock Market News for May 21, 2010 - Market News

The plunge in stocks Thursday was akin to post-Lehman days of late 2008 and early 2009.  Investors were concerned that Europe’s financials malaise will spread around the world and derail global economic growth.     

As fears swept the market, stocks took their deepest plunge in a year, falling almost into a “correction territory." Selling intensified late in the session and shares of industrial and commodity producers dropped sharply.  A possible slowdown of China growth and the debate over financial reform at home also spooked investors.  None of the thirty DJIA components could manage gains on the day, and 497 of the S&P 500 closed in the red.  

The Dow Jones industrial average plunged 376.36 points, or 3.6%, for its biggest point drop since February 10, 2009.  The tech-heavy Nasdaq lagged with a drop of 4.1%, for its biggest single-session percentage decline since February 17, 2009.  Plunging stocks shaved 43 points, or 3.9%, off S&P as the index recorded its biggest one-day point drop since January 20, 2009.  S&P closed below its 200-day moving average.  Meanwhile, the CBOE Vix, the measure of market volatility, surged almost 30% to close at 45.79.

Leading the Dow average lower were Alcoa AA, off 6%, Caterpillar CAT, down 4.5% and Boeing Co. BA, which dropped almost 5%, on global demand concerns.  General Electric GE dropped 5.8% and McDonald’s MCD closed off 2.5%.  Volume on the NYSE spiked to 2.13 billion shares, nearly twice the daily average, as declining shares outpaced advancing issues by a wide, 15-to-1 margin.

After its March 2009 lows of 6,547, the Dow has risen steadily, and touched its 2010 high of 11,045 in late April.  However, the index has since lost 1,137 points, or about 10.2%, signaling a mini correction is in the works.  The S&P 500 and the Nasdaq, after touching their respective year highs on April 23, are down 12% and 12.9%, respectively.  Most analysts, however, aver that such a correction was in the offing, given the market’s unprecedented run after last March’s multi-year lows.

Meanwhile, the US dollar continued higher, rising 0.1% against a basket of currencies yesterday.  Flight to safety sent the US Treasuries higher, with the 10-year closing up 1 10/32 in price to its highest level in a year, as its yield dropped to 3.216%.  The strength in greenback and global demand concerns weighed on commodity prices, with crude prices dropping $1.86 to $68.01.  The broad-based DJ-UBS commodity index closed down 0.9%.  Gold prices too failed to take advantage of their safe-haven status and closed down $4.50 to $1,188.60.

Yesterday's Senate passage of the financial reform bill weighed on financials.  Citigroup C shares fell 4.7% while Bank of America BAC dropped 6.2%.  Early in the week leading bank shares plunged on Goldman Sachs' GS assessment that the regulation will result in an earnings haircut of more than 20% at the 28 biggest banks.

All ten major S&P500 industry sectors dropped yesterday, led by a 4.7% plummet in basic material shares on the dollar strength and growth fears, and a 4.6% plunge in financial shares on regulatory concerns. Also closing the day in the red were: industrials (-4.6%) on their exposure to a European economic slowdown, oil and gas shares (-4.5%) on demand concerns, consumer services (-3.8%), tech (-3.7%), utilities (-3.5%), consumer goods (-3.4%), health care (-3.4%), and telecommunications (-2.9%).

Germany's surprise move to ban naked short selling continued to draw criticism, as it hinted at fissures within the eurozone.  Investors were concerned about the implications of the move even as they fretted about prospects of similar moves in other countries.