Index Daily Change
S&P/TSX composite index 0.28% Drop
Dow Jones industrial average 3.20% Drop
Standard & Poor’s 500 Index 3.24% Drop
Nasdaq Composite Index 3.44% Drop
Stocks tumbled the most in a year on concern Europe’s debt crisis will halt the global recovery. The sell-off briefly erased more than $1 trillion in market value as the Dow Jones Industrial Average fell almost 1,000 points, a 9.2% drop, its biggest intraday percentage loss since 1987, before paring the drop. The MSCI World Index of stocks in 23 developed nations dropped 2.8% and has dropped 6.4% in the past 3 days, its biggest retreat in the past 14 months.
Canada’s main stock index closed lower for a 4th straight day yesterday but cut a 3.8% intraday drop that was sparked by a drop in crude futures and worries the Greek debt crisis may widen to other Euro zone countries. The TSX energy sector declined by 1.41%, though losses were 4 times larger at one point, as U.S. crude prices fell below $77 a barrel on fears the debt crisis could threaten economic recovery and undercut demand for oil. Heavyweight financials were down by 1.26%, although strong profits at the country’s biggest insurers helped to reduce the steep drop. The gold and materials sector were big advancers as the price of gold rallied by more than $30.00 and broke $1,200.
Amid the selloff, the TSX fell 452 points, or 3.8%, to 11,422.73, its lowest level since February 25th. It was the steepest 1-day percentage fall since June 2009. Along with the Greek debt crisis, analysts also cited uncertain U.K. elections and a large, erroneous trade entered by a big Wall Street bank as possible reasons behind the day’s volatility (According to multiple sources, a trader entered a “b” for billion instead of an “m” for million in a trade possibly involving Procter & Gamble, a component in the Dow).
The Nasdaq issued the names of hundreds of stocks for which it is canceling trades following yesterday’s sudden stock market plunge. As you know, soon after 2:30 p.m., the Dow Jones Industrial Average fell nearly 1,000 points in its largest ever intraday points drop, which may have involved a trading error. U.S. stock indices plunged by an average 9% in the last 2 hours of trading before clawing back some of the losses.
Nasdaq said it would cancel trades with price deviations of more than 60% between 2:40 p.m. and 3 p.m. from their 2:40 p.m. levels, and the New York Stock Exchange said it would similarly cancel trades on its all-electronic platform that deviated over 60% from their last print at 2:40 p.m. between 2:40 p.m. and 3:00 p.m.
Nasdaq said its decision was made in conjunction with other exchanges and said it could not be appealed.
The TSX, which hit its highest level since September 2008 late last month, has closed lower for 4 straight days as investors try to sort out sentiment about Europe’s debt issues.
In the United States stocks declined by 9% in the last 2 hours of trading yesterday before clawing back some of the losses as a suspected trading glitch and fears of a new credit crunch in Europe threw markets into disarray and panic. The Dow suffered its biggest ever intraday point drop of 998.5 points. The market’s fall may have been exacerbated by erroneous trades that showed some shares briefly fell to nearly zero.
Indexes recovered some of their losses heading into the close to end down. The sell-off comes at a tense time for investors and Wall Street, with fraud charges against Goldman Sachs, fears of a wave of debt defaults in Europe and increasing talk from Capitol Hill for financial regulation.
Volume soared to twice its daily average for this year and was at its highest since October 2008 when financial markets seized up after the bankruptcy of Lehman Brothers. About 19.13 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq. Last year’s estimated daily average was 9.65 billion. Decliners outnumbered advancers on the New York Stock Exchange by a ratio of more than 17 to 1.
The Chicago Board of Options Exchange (CBOE) Volatility Index, known as Wall Street’s fear gauge, closed up more than 30% at its highest level since May 2009 at 32.8 (at one time during the day it hit 40.7).
The sell-off was broad and deep with all 10 of the S&P 500 sectors falling from 2% to 4%. The financial sector index was the worst hit, dropping 4.1%.
Investors had been on edge throughout the trading day after the European Central Bank (ECB) did not discuss the outright purchase of European sovereign debt as some had hoped and thereby calm markets. The ECB gave verbal support to Greece’s savings plan instead, disappointing some investors. ECB President Jean-Claude Trichet held interest rates at a record low of 1% yesterday and said the bank didn’t discuss whether to purchase government bonds to stem the region’s debt crisis, defying market speculation that he would take such measures.
The ECB can fix the volatility by doing what the Fed did and instantly provide liquidity by buying bad fixed-income instruments and paying cash in U.S. dollars. This kind of market sell-off is not even being discussed, Trichet said. There’s a perception that what’s going on in Europe will be dragging the region back into a recession. The question is how much of that is going to be contagious to the rest of the world?
Today’s release of U.S. non-farm payrolls for April by the U.S. Labor Department, one the most important reports on the economic calendar, will help as investors try to judge the strength of the U.S. recovery but may also keep investors on edge. Economists polled by Reuters expecting employers added 200,000 jobs last month after a 162,000 increase in March. Unemployment is seen holding steady at 9.7 percent. The report is due at 8:30 a.m. EDT.
This morning U.S. stock index futures rose, with shares set to rebound after a steep fall and ahead of a report expected to show the U.S. economy added more jobs last month (Canada added more than 100K).
The focus will be on stronger-than-expected-economic data, a strong earnings growth rate and the chance that 3 to 4 straight days of declines may have taken the market to an oversold position. At the open we’ll probably see bargain hunters overpowering the panic sellers. It is very clear that governments cannot spend more than they take in (in the form of taxes).
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
