The Dow Jones Industrial Average index (DJIA) slid more than 1 percent during Tuesday’s stock market trading session as Greek uncertainty continues to prevail following the weekend’s head of state elections. The Dow plummeted more than 170 points during the first two hours of trading Tuesday before rebounding slightly to a daily loss of 140 points, or 1.1 percent, by 2:40pm Eastern Time.
Over the weekend, the citizens of the country of Greece elected Antonis Samaras as their new head of state, but Samaras received less than 20 percent of the overall vote due to a number of candidates who were on the ballot. The nation was thrown into further uncertainty Tuesday when Samaras announced that he has so far been unable to form a new government; leaving less than 72 hours remaining for the New Democracy Party to form a cabinet and proceed. If it is unable to do so, a fresh round of elections could take place in June. On Tuesday, Greece’s stock market declined more than 3.5 percent.
Greece has been through two federal governments in less than a year as citizen anger over fiscal bailouts, federal budget cuts and job losses has resulted in the ouster of former Prime Minister George Papandreou along with the party represented by the current head of state Lucas Papademos. Samaras’ New Democracy party is opposed to austerity measures that have been imposed on Greece. Investor sentiment that Greece may ultimately drop out of the European Union and cease to utilize the Euro as its official currency has increased in recent days.
Shadow Over Risk Markets
In an article published by CNN Money Tuesday, RIA Capital Markets in Edinburgh Investment Strategist Nick Stamenkovic said, “The political stalemate in Greece is casting a shadow over risk markets in general and equities in particular. Investors are questioning whether Greece will be a part of the single currency at the end of this year.”
Greece is currently on its second federal bailout package that was approved earlier this year by finance ministers from the EU, International Monetary Fund and other central banks. The emergency loan package was extended in exchange for a fresh round of austerity promises after the country, backed by Germany and the IMF, was able to convince private bondholders to take a substantial haircut on the amount owed to them by the government. When the dust had settled, individuals and institutions owed agreed to accept new notes that are less than half their original value due to fears that the country might default otherwise.
Dow Jones Reaction to Greek Uncertainty
As of 2:40pm Eastern Time, the Dow Jones was trading at 12,866 points, which is 1.1 percent lower than Monday’s closing level. For the year, the Dow has enjoyed a 5.3% gain, but that increase could be easily erased entirely if investors begin to fear sovereign debt contagion into U.S. equity markets. Yields for 10-year U.S. Treasury notes declined another 4 basis points Tuesday to 1.84%, signaling a strengthening in United States bonds as domestic and overseas investors seek a safe haven for assets while the Eurozone deals with its latest financial crisis.
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