Greek turmoil spreads pessimism across markets
The unending turmoil in Greece spread fallout across the financial markets Wednesday. The Dow Jones industrial average fell for the ninth day out of 10, and gold, oil, and the euro all dropped to multi-month lows.
Greece called a new round of elections for June 17 after coalition talks to form a government fell apart. The president said depositors were pulling hundreds of millions of euros out of banks, weakening the country's strained financial system.
The main cause for investor worry was that Greece would pull out of the group of countries that use the euro, and that that would throw the global markets into chaos. The average has lost 4.4 percent in May and is headed for its first losing month since September.
"We're in a period where there's little conviction to buy," said Richard Cripps, chief investment officer at brokerage Stifel Financial. "The road ahead is too uncertain because of European concerns and the presidential election later this year."
Elsewhere in the markets, it was an eventful day: The dollar continued its two-week climb against the euro. The dollar improved to $1.27 per euro, the strongest since January, as traders worried about a messy exit from the euro bloc by Greece.
The stronger dollar drove the Indian currency, the rupee, to an all-time low. The rupee sank to 54.44 against the dollar, surpassing the prior low of 54.39 on Dec. 15. — The price of benchmark U.S. crude oil fell by $1.17 to finish at a seven-month low of $92.81 per barrel.
It is down nearly 13 percent since the beginning of May. The prices of commodities that are traded in dollars, like oil and gold, tend to fall when the dollar rises. A report also showed U.S. crude supplies at the highest level in 22 years.
The price of gold fell $18.60 to $1,538, the lowest since December. Gold is approaching a 20 percent decline, the traditional definition of a bear market, from its peak of $1,907 in September.
Besides the stronger dollar, exaggerated optimism about gold's prospects was an important factor in the sharp decline, said Jon Nadler, senior analyst at Montreal- based Kitco Metals. "Effectively, reality has caught up with the market," he said.
As investors fled to safer U.S. government bonds, the yield on the benchmark 10-year Treasury note hit its lowest level this year, 1.76 percent. The Nasdaq composite index fell 19.70 points to 2,874.04.
Worries about Europe also spread beyond Greece. Spain's prime minister warned that the country, which is trembling under a 24.4 percent unemployment rate, could be locked out of international markets due to problems in the EU.
One note of hope on the European debt crisis was sounded by Doug Cote, chief market strategist of ING Investment Management. He said Greek leaders would realize that tightening the country's budget would be better than the chaos that would follow if Greece abandoned its euro neighbors.
"Is there the possibility that Greece would choose Armageddon? Sure," he said. "But why they would choose to inflict more pain on the Greek people is beyond me." There was positive news on the U.S. economy, but it wasn't enough to get investors excited.
Construction of homes rose 2.6 percent from March, and U.S. factory production increased 0.6 percent in April, helped by a gain in auto production. Target stock bucked the broader market and rose 24 cents after a strong earnings report.
Target said revenue at stores opened at least a year rose 5.3 percent, the strongest performance in six years for that period. Target's results may illustrate that Americans are beginning to spend cautiously as economic uncertainty persists.
Though the job market is still shaky, the falling price of gas has given shoppers hope.