The stock market was down significantly today on news from the Eurozone that failed to shed light on growing concerns over the sovereign debt crisis of several EU nations. The Dow Jones Industrial (DJI) fell 198 points, or 1.63%, to 11,997 by market close on Thursday. The NASDAQ Composite plunged 2 percent to 2,596 and the S&P 500 was down 2.11% to 1,234.
European financial stocks were among the hardest hit as Royal Bank of Scotland (RBS) dove 7.93% to $6.50 per share and Deutsche Bank (DB) ended the day down 7.76% to $37.22. U.S. based financial stocks fell sharply as well, with Morgan Stanley (MS) decreasing in value by 8.42% to $15.88 per share and Citigroup Inc. (C) sinking $2.08 per share to $27.75 at the end of the trading session on Thursday. JPMorgan Chase & Co. (JPM) and Bank of American Corp. (BAC) shared similar fates.
On the opposite end of the spectrum, drug maker Affymax Inc. (AFFY) enjoyed a 36% increase in value in its stock, up to $7.98 per share, after news emerged that its anemia drug “peginesatide” would be backed by the Food and Drug Administration (FDA).
European Roller Coaster
Global markets had reacted positively to potential news that a Eurozone bailout was in the works early this week ahead of Friday’s summit of EU policy makers in Brussels, but that sentiment quickly changed today. In spite of the European Central Bank (ECB) dropping its interest rates to 1% and agreeing to throw a lifeline to struggling European financial institutions by authorizing three-year loans, the main news that drove the day was the fact that the ECB is unlikely to lend to the International Monetary Fund.
Earlier this week, rumors had emerged that a total of $600 billion in loans could be funneled through the IMF in order to provide an immediate boost of liquidity to troubled EU countries such as Italy, Spain and others. However, today’s announcement by the ECB shows that its policy is to assist struggling banks, but not governments.
According to an article published by CNN, European banks will need to raise well over €100 in capital by June 2012 in order to restore investor confidence and pass potential stress tests that would gauge a bank’s ability to withstand dwindling future economic figures. Standard & Poor’s ratings agency has placed itself into the political mix this week as well, imploring EU officials to act promptly in order to stem the crisis and placing several EU countries and banks on “CreditWatch Negative” ahead of a possible credit downgrade.
Referring to regulators’ mandate that struggling Eurozone banks seek additional capital, Keith Springer, president of Springer Financial Advisors told CNN today, “It’s really no surprise. We know they’re undercapitalized.”
Individuals who are taking advantage of the current crisis might consider how the latest news affects their IRA. High volatility in markets generally means that stocks move in lock-step with regional tendencies, making it more difficult to choose winning and losing companies.
Visit our site and browse through the multitude of resources to find out more information on how you can open an IRA.
Pressure appears to be mounting on European Union countries to implement additional austerity measures in order to reign in spending and guarantee a new round of bailout loans. While the country of Greece was once the only major concern among investors who place assets in sovereign debt, the crisis has now spread throughout the EU and is threatening sovereign debt in countries that have ecnomies which are too large to be bailed out by Germany.
The latest news out of Europe shows a reluctance by the ECB to authorize loans via the IMF in order to assist countries and plug the leak as bond yields continue to rise.