Stocks Punished by European Fears

Published on Wednesday, 30 May 2012 18:14 Written by Christopher Lynn

New York, May 30^th (TradersHuddle.com) – Stocks dropped sharply as the euro broke below the $1.24 level amid deepening fears over the crisis in the euro zone periphery. Bond yields climbed in both Spain and Italy, raising fears that Spain would not be able to finance its debt load and handle a worsening banking crisis. Weaker than expected housing data in the U.S. weighed as well, as jittery investors look for key employment figures at the end of the week. Meanwhile, demand for safe haven assets continued, as the 10-year Treasury yield hit a new record low during the day.

The Dow Jones Industrial Average lost 160.83 points, or 1.28%. The S&P 500 index tumbled 19.10 points, or 1.43%, while the NASDAQ slumped 33.63 points, or 1.17%.

The market started under significant pressure as European woes continued to weigh on global markets. Headlines over potential bank recapitalizations and euro bonds, helped lift futures from their lows, but rising yields in both Spain and Italy, coupled with additional pressures in the euro spurred additional weakness as participants moved toward safe haven asset like 10-year Treasuries.

On the economic front, pending home sales unexpectedly fell 5.5% in April, hitting a four month low, raising doubts over the earlier in the year promising sings for a housing recovery. The data didn’t help and with the U.S. heading towards two heavy macro economic data points, investors preferred to cut risky asset exposure, which coupled with fears over the debt crisis in Europe worsening send the Treasury 10-year yield to record lows and the euro to trade at new 52-week lows below the $1.24 level.

Shares of Facebook (NASDAQ: FB) received another hit, tumbling more than 2% to $28.19 and trading below the $28 handle amid ongoing concerns over its valuation. The stock logged a new low at $27.86 and has tumbled more than 25% from its IPO price of $38, in which is now considered one of the worst IPO debuts ever. Earlier in the day, Facebook received notice from U.S. antitrust regulators that its $1 billion purchase of Instagram will be subject of a lengthy investigation. Yesterday, Credit Agricole initiated coverage on the stock with a Buy.

All of the S&P 500 key sectors closed lower for the session, with energy, financials, and materials posting the biggest declines. Energy tumbled more than 3%, as crude oil slumped below the $88 per barrel level. Halliburton (NYSE: HAL) tumbled more than 5% in the session, while Alpha Natural Resources (NYSE: ANR) logged the largest decline in the sector, as shares tumbled 6.5%. The metallurgical coal producer was under pressure amid the European woes but also as hopes for a fresh Chinese stimulus waned.

The drop in the euro, the movement toward risk-off assets, and diminished hopes for a Chinese stimulus weighed on the material sector. Alcoa (NYSE: AA) tumbled 3.5% to $8.58, posting the biggest decline in the Dow Jones Industrial Average. Meanwhile, Monsanto (NYSE: MON) was the sole gainer in the sector after the company issued upside earnings guidance for fiscal third quarter and fiscal 2012. Monsanto jumped 2.2%, logging the second biggest advance in the S&P 500 after saying that its EPS for the third quarter at will be at a range of $1.52 to $1.62 versus consensus of $1.29.

Financials were also under pressure amid the European woes and after the weak housing data. Bank of America (NYSE: BAC) logged the second biggest decline in the blue chip index, as shares tumbled more than 3%, ending at $7.20. The stock gave up all of its gains from the prior session and closed just above its 200day moving average at $7.18.

The weak data in housing also hit the homebuilder space. Lennar (NYSE: LEN) tumbled more than 6%, logging the second biggest decline in the broad market index. Rivals, PulteGroup (NYSE: PHM) fell 3.5% and D.R. Horton (NYSE: DHI) slumped 4.7%.

Also in the consumer discretionary space, Sears Holdings (NASDAQ: SHLD) plunged nearly 9% in the session, logging the biggest percentage drop in the S&P 500, as retailers were under broad pressure ahead of same store sales data. The stock got hit, particularly hard, amid cautious comments from Cleveland Research.

In the technology space, Apple (NASDAQ: AAPL) shrugged the broad weakness, helping the both the S&P 500 and the NASDAQ to move off their lows of the session as shares gained 1.21% to $579.17. Apple outperformed, logging a new May recovery high at $579.99, amid increased speculation over the potential of an Apple TV set. CEO Tim Cook said on a technology conference that there was an intense company focus on TV. According to reports, the tech giant will likely unveil a new TV operating system at the company’s WWDC next week.

Rival Research In Motion (NASDAQ: RIMM) tumbled more than 7% after the company said that its financial performance would continue to be challenged for the next few quarters and warned of a fiscal first quarter operating loss.