U.S. stocks fall amid Greek crisis
Wednesday, May 5, 2010
Fears that the Greek debt crisis might spread to other European countries -- and perhaps across the Atlantic -- pummeled U.S. stocks on Tuesday, just as investor confidence was building that the worst of the economic crisis was over.
The markets suffered their worst day since February as the Dow Jones industrial average and the Standard & Poor's 500-stock index both fell more than 2 percent.
The sell-off comes on the heels of an upbeat period marked by stronger-than-expected profits for many U.S. companies and favorable reports about consumer spending, housing and manufacturing. But financial troubles in Greece and the threat to other deeply indebted European countries serve as a startling reminder of how quickly gains could unravel.
"In general, the American markets have been ignoring a series of headwinds," said Dan Greenhaus, chief economic strategist at Miller Tabak. "To use a catch phrase, they've had their heads in the sand a little bit. . . . This is a reminder that this is not a fully recovered global economy."
The market turmoil reflects investor doubts about whether the Greek government can successfully impose on its people the austerity measures required under a $145 billion financial rescue package, which the European Union and the International Monetary Fund offered Athens last weekend. Some financial analysts have warned that the emergency assistance may not be enough to cover Greece's needs.
Investors are also unnerved by the possibility that the E.U. and IMF could be hard pressed to come up with additional aid, perhaps hundreds of billions of dollars more, to stem the financial contagion if it spreads to countries such as Portugal and Spain.
The IMF plans to meet Sunday to approve its $40 billion portion of the package for Greece. The deal also requires the approval of the 15 European countries in addition to Greece that use the euro as their common currency.
But the austerity measures required by the rescue package -- including slashing public pensions and raising taxes -- sparked protests Tuesday on the streets of Athens. Angry teachers went on strike and Communist Party protesters broke through the gates of the Acropolis and hung "Peoples of Europe Rise Up" banners on the ancient monument, according to news media reports. More protests are expected Wednesday.
The strikes underscore the hurdles Greece's Socialist administration faces as it tries to sell the deal to a public that is used to government largess.
"The Greeks are not exactly embracing the bailout and saying thank you to everyone," said Ed Yardeni, chief investment strategist for Yardeni Research. "It is hard to rescue a country that doesn't want to be rescued."
Yields on bonds issued by Greece climbed Tuesday, suggesting that investors were afraid the rescue package is not big enough and that the country could default on its debt.
Win Thin, senior currency strategist for Brown Brothers Harriman & Co., said that perhaps more important, the market upheaval exposes "the fatal flaws" in the eurozone experiment. The eurozone is a currency union of European countries that have a common central bank but independent budget policies.