Stock Market News for June 1, 2010 - Market News

Fitch Ratings’ downgrade of Spain’s debt for the second time in a month rekindled worries about Europe’s finances and sent stocks sharply lower on the last trading session of May. 

Trading was quiet as the session began but stocks swung wildly in the afternoon as Fitch Ratings cut Spain’s debt one notch to AA+ from triple A.  The rating agency noted the recent passage of austerity measures by Spain would weigh on the country’s economic growth.  Stocks registered their worst percentage decline for the month since 1940, hurt by the news of the downgrade.  However, Fitch said Spain’s outlook is stable. 

The uncertainty surrounding the European finances have dominated global markets even as countries such as Greece and Spain have announced measures to control the crisis that threatens to put the global economic recovery in jeopardy.  Market participants are worried that the problems could spill over to other European economies and possibly spread to the United States. 

Last week, Spain’s central bank rushed in to save CajaSur, a regional bank, after merger talks with another savings bank broke down, igniting concerns about the banking system in the country.  The rescue came at a critical time, given mounting international concerns about Spain’s creditworthiness.  Fitch, in its report, noted Spanish government’s plans for an additional $18.5 billion in spending cuts could materially impact the country’s economy. 

This morning the euro plunged to a fresh 4-year low against the US dollar.  Asian markets took a tumble today on lingering fears about the European debt crisis, and after a report showed Chinese construction slowed in May.  In Europe, stocks reacted to the ECB's comments late-Monday that euro zone banks face $239 billion in write-downs this year and next.  According to the ECB, there’s a risk of "bank bond issuance being crowded out" as governments face "heavy financing requirements over the coming years".  Geopolitical worries are also keeping sentiments numb this morning. 

On Friday, the Dow Jones industrial average dropped 122.36 points, or 1.2%, to 10136.63.  The widely tracked S&P 500 index dropped 1.2% to 1,089.41 and the tech-heavy Nasdaq fell 20.64 points, or 0.9%, to 2,257.04.  On the New York Stock Exchange, about two stocks fell in price for every one that advanced as volume dipped to 1.45 billion shares. 

On the S&P 500, financials and energy sectors were the worst performers.  Declines on the Dow average were broad based with only three stocks managing to close the day in the green.  Procter & Gamble PG and Coca-Cola KO, led on the upside with modest gains.  Bank of America BAC and Disney DIS led the decliners on the Dow, with a drop of 2.72% and 2.76%, respectively.

The Dow average plummeted 7.9% for May, its highest monthly decline since February 2009.  For the month, the S&P 500 index dropped 8.2% for its worst May decline since 1962.  The S&P500 is now off 10.5% from its April highs, while the NASDAQ is down 10.8% from the highs reached in April.  The DJIA, off 9.5% from its April peak is a relatively better performer.

The rush to safe-havens sent Treasury prices higher. The yield on the benchmark 10-year note dropped to 3.29% from 3.36% late Thursday.