With no concrete action in Europe, stocks slump
ASSOCIATED PRESS August 2, 2012 8:28AM
Traders and floor officials gather at a post on the floor of the New York Stock Exchange shortly after the beginning of trading, Wednesday, Aug. 1, 2012. The market wavered between gains and losses for much of Wednesday, yanked around by technical problems, an ambiguous statement from the Federal Reserve, and mixed reports on U.S. companies that made it difficult to decipher just where the economy is headed. (AP Photo/Richard Drew)
Updated: August 2, 2012 3:25PM
NEW YORK — Stocks are closing lower for the fourth day straight. Investors are disappointed that European leaders didn’t offer more detailed plans for tackling the region’s debt crisis.
The Dow Jones industrial average lost 92 points to close at 12,879. The Standard & Poor’s 500 index fell 10 points to 1,365. The Nasdaq also lost 10 points, ending the day at 2,910.
The European Central Bank had planned to present a bond-buying program but instead committed only to a vague plan of action after Germany’s central bank declined to back the plan.
Knight Capital, the trading firm whose technical glitch sent dozens of stocks into chaos Wednesday, plunged 63 percent.
Three stocks fell for every two that rose on the New York Stock Exchange. Volume was above average at 4.1 billion shares.
European leaders on Thursday gamely laid out plans for tackling the continent’s debt crisis. But the markets wanted much more.
Stocks sank across the U.S. and Europe, the euro fell against the dollar and investors dumped bonds issued by the governments of Spain and Italy. Investors had been expecting more immediate action from the European Central Bank and were disappointed by the plan’s lack of details, especially considering the ECB president’s pledge last week to do “whatever it takes” to keep the euro intact.
A week later, investors’ response was more like: “whatever.”
It was the second day in a row that markets were disappointed by a lack of decisive action from a major central bank. On Wednesday, stocks closed lower after the Federal Reserve made only vague promises about its plans for trying to revive the U.S. economy.
“It’s more jawboning, it’s more copy and paste from last week,” said Kenny Polcari, managing director of the brokerage ICAP. “There was no definitive plan, and so all the hype and energy (Draghi) created last week is going to go down in flames today.”
It was the fourth day in a row of losses; U.S. stocks haven’t risen since ECB President Mario Draghi’s now-famous three-word promise one week ago.
Draghi on Thursday did commit his central bank to more action, saying it would make a new effort to buy government bonds. The hope is that buying the bonds would drive down borrowing costs for Spain and Italy. Those costs are crucial in the debt crisis: If they get much higher, Spain and Italy could find themselves unable to afford to borrow money by selling bonds on the open market, the same problem Greece had.
The yield, or interest rate, on Spain’s benchmark 10-year bond jumped to 7.06 percent from 6.68 percent late Wednesday. The yield on Italy’s 10-year bond rose to 6.30 percent from 5.85 percent. Other countries have been forced to seek bailouts once their rates rose above 7 percent.
Draghi said that policymakers would work out more specifics in the coming weeks. Even with the lack of details, the ECB’s willingness to buy more bonds sent a clear, grim message: Europe’s financial crisis is getting worse.
To be fair, the ECB faces a Herculean task with no easy solutions. Whatever it does is sure to offend someone, and skeptics doubt that it has any weapons left in its arsenal that could make a big difference. Some of the weaker countries in Europe, like Greece, have been resistant to the spending cuts the ECB has tried to impose as part of a solution.
It’s also unrealistic for investors to expect quick fixes to a problem that was so long in the making, said Christian Bertelsen, chief investment officer of Global Financial Private Capital in Sarasota, Fla.
In the U.S., he noted, there was a half-year lag between the Treasury announcing it would buy stakes directly in banks in fall 2008, and investors becoming comfortable by spring 2009 that there wouldn’t be uncontrollable bank failures.
“People look at Euroland and say, ‘Why don’t they get something done there?’” Bertelsen said. “How quickly they forget what a miserable six months it was here.”
In the U.S., thoughts of Europe were close at hand. General Motors and Kellogg reported lower quarterly profits, which they attributed partly to Europe.
In other trading:
—Knight Capital Group, the trading firm that took the blame for a technical glitch that sent trading of dozens of stocks into chaos early Wednesday, lost more than 60 percent of its value, plunging $4.39 to $2.55. Knight said it would suffer a $440 million loss because of the trading problems.
—Abercrombie & Fitch dropped 15 percent and Aeropostale dropped 32 percent after both companies pre-announcing weak second-quarter sales. Abercrombie lost $5.29 to $28.75. Aeropostale lost $6.19 to $13.26.
—Bristol-Myers Squibb, the drug company, fell 8 percent after suspending a study of a potential hepatitis C treatment, citing patient safety issues. The stock lost $3.01 to $32.59.
—There were some positive signs about the economy but they got lost in the stronger maelstrom. Retailers including Target, Limited Brands and Gap announced that July sales had beat expectations. Shares of all three companies were up in early trading. Gap rose the most, climbing 12 percent, or $3.44, to $32.87.
