Dow off 350 on Greece news; worst point drop since ’13

30 Jun 2015 | Author: | No comments yet »

Dow Drops 350 Points on Greek Drama.

NEW YORK – U.S. stocks fell sharply in heavy trading on Monday and the S&P 500 and the Dow had their worst day since October after a collapse in Greek bailout talks intensified fears that the country could be the first to exit the euro zone.The Dow Jones Industrial Average fell more than 350 points, erasing all of its gains for 2015, while the Standard & Poor’s 500 index suffered its biggest percentage point decline since April 2014, falling more than 2% as Greece’s debt crisis took an unexpected turn for the worse over the weekend.

U.S. markets got hammered Monday as the Greek debt crisis deepened, with investors pushing the Dow down 350 points — and back in the red for 2015 — after steeper sell-offs in Asia and Europe. And Greece appeared to confirm it was heading for a default after a government official said the country would not pay a 1.6 billon euro loan installment due to the International Monetary Fund on Tuesday.

U.S. investors also worried about Puerto Rico’s debt problems and a bear market in China the day before quarter-end and ahead of Thursday’s U.S. jobs report and the long weekend for U.S. Independence Day. “None of that bodes well for people stepping in and buying the dips as has been the mentality most of the year,” Michael James, managing director of equity trading at Wedbush Securities in Los Angeles who said U.S. shares could fall again Tuesday. “Could that reverse itself tomorrow?

It’s going to take a lot of good news from Greece,” he said noting that portfolio managers would not want to show risky equities on their books at the end of the second quarter. Even so, Greece is a tiny economy and eventually the markets will be able to look through the uncertainty and realize that this is most likely an isolated case. However, we must recognize that while traders could take advantage of near-term dips, most equity markets are relatively expensive; a modest pullback probably doesn’t represent buying opportunities for longer-term investors. How Wall Street reacts going forward to the mounting crisis in Greece and the rising odds of a Greek exit from the 19-nation eurozone could provide investors with a better sense of how vulnerable markets are.

Volatility rose sharply and all 10 S&P sectors retreated while the Global X FTSE Greece exchange-traded fund, which tracks the Athens stock market, fell 20 percent. This has never happened before,” said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago. “When you don’t know what could happen you sell. For now, markets are waiting for developments to unfold, with Greek banks and its stock market closed for at least a week, as the Greeks are set to vote Sunday July 5 on whether to accept creditors “austere” bailout terms. You get on the sidelines.” While the Greek economy is small and most U.S. corporations have limited direct exposure, investors are concerned about the fallout across Europe if Greece exits the euro zone.

However, if Wall Street trades calmly, as it appears now, and losses don’t worsen dramatically, it could act as a calming influence on world markets on a difficult day. U.S. stocks, of course, are still trading near record highs, and by at least one valuation metric, the price-to-earnings ratio, the market is overvalued relative to history. Declining issues outnumbered advancing ones on the NYSE by 2,874 to 282, for a 10.19-to-1 ratio on the downside; on the Nasdaq, 2,469 issues fell and 367 advanced for a 6.73-to-1 ratio favoring decliners.

Bill Hornbarger, chief investment strategist at the Moneta Group, said late Sunday night that he expects markets to be lower today, but added that the drop in the U.S. “won’t be too severe.” The reason: a break down in bailout talks between Greece was never ruled out entirely by Wall Street. “This has always been a possibility,” says Hornbarger. About 7.3 billion shares changed hands on U.S. exchanges, compared with the 6.3 billion average for the month-to-date, according to data from BATS Global Markets. What’s more, the final chapter in the Greek drama has yet to play out as the referendum is six days away. “I don’t think it will be a severe selloff since nothing conclusive comes today,” says Luschini. “And Europe is renown for moving to solve their issues only after a market riot.”

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