Two day rally ends on Greek worries
US stocks sank on Wednesday as Greek debt woes, US data and disappointing profit forecasts fueled bearish sentiment, putting the market back on its downtrend after a two-day rally.
Forecasts from companies, including Nucor Corp, Owens Illinois and Ford, underscored concern that economic sluggishness will hit earnings.
Bank stocks helped lead the decline after Moody’s Investors Service said it may cut the credit ratings of French banks, citing exposure to Greek debt. The French banks have $65bn in overall net exposure, versus $40 bn for Germany and $41bn for the United States, according to the Bank for International Settlements.
Declines in shares of insurers also outpaced the broader market, with the KBW insurance index down 2.8 percent. Allstate lost 2.4 per cent to $29.49.
The KBW bank index was down two per cent. Manufacturer 3M fell 1.6 per cent to $91.13 and ranked among the biggest drags on the Dow. An index of semiconductor stocks dropped 1.7 per cent, weighing on the Nasdaq.
“The downward trend that’s been in place for the last couple of months certainly remains intact, and I suspect it will remain intact until we get more concrete data with regard to the second quarter,” said Thomas Villalta, portfolio manager for Jones Villalta Asset Management.
The CBOE Volatility Index jumped 14 per cent to 20.82 — its highest level since 23 March.
The core US Consumer Price Index, which excludes volatile food and energy prices, rose more than expected in May, while the New York Federal Reserve’s Empire State manufacturing index unexpectedly shrank in June, falling below zero for the first time since November.
The data confirmed views that the economy is getting weaker even as prices are rising. Those economic worries have been behind a roughly eight per cent slide in the S&P 500 since its near three-year high on 2 May.
Worries about the Greek debt crisis escalated as Moody’s Investors Service said it may cut the credit ratings of French banks, citing exposure to Greek debt.
The Dow Jones industrial average was down 183.65 points, or 1.52 per cent, at 11,892.46. The Standard & Poor’s 500 Index was down 22.94 points, or 1.78 per cent, at 1,264.93. The Nasdaq Composite Index was down 43.05 points, or 1.60 per cent, at 2,635.67.
Moody’s also said it may downgrade the ratings of some subsidiaries of Portuguese banks in Brazil.