Dow Tumbles 350 Points as Greek Crisis Worsens
S&P 500 posts largest one-day percentage decline since April 10, 2014
By Corrie Driebusch, WSJ
Updated June 29, 2015 4:55 p.m. ET
U.S. stocks tumbled Monday, wiping out gains for the year, as a worsening in Greece’s debt crisis jolted global markets and pushed the country closer to an exit from the eurozone.
The Dow Jones Industrial Average slumped to a nearly five-month low, and the S&P 500 posted its largest one-day percentage decline since April 10, 2014. The sharp declines came as Greece shut down its banking system and its central bank moved to impose controls to prevent money from leaving the country. On Monday, a senior Greek government official said the country won’t make a debt repayment to the International Monetary Fund due Tuesday. Stocks fell to session lows as Standard & Poor’s subsequently said it saw a 50% likelihood of Greece eventually exiting the eurozone.
Traders said the selling was broad-based. Trading volumes were slightly elevated, with 7.3 billion shares changing hands compared with the year-to-date average of 6.5 billion shares. The biggest decliners on Monday were the sectors that have recently seen the biggest gains, including shares of financial and consumer discretionary companies.
The Dow industrials declined 350.33 points, or 1.95%, to 17596.35. The S&P 500 index lost 43.85 points, or 2.1%, to 2057.64, and the Nasdaq Composite Index dropped 122.04 points, or 2.4%, to 4958.47.
“People are getting nervous, as what seems like all of a sudden out of the blue, you have multiple hot spots,” said Ian Winer, head of equity trading at Wedbush Securities. “They’re just trying to protect their gains on the year and position themselves in the event that this becomes a more dramatic selloff.”
In addition to worries about Greece, investors also grappled with renewed concerns over Puerto Rico’s ability to pay its debts after its governor said the island nation may not be able to repay all its outstanding debt in full. There was also continued market weakness in China, where stocks closed in bear-market territory, defined as a fall of 20%. China’s central bank cut interest rates over the weekend, but the move did little to boost Chinese shares.
As global stock markets fell Monday, traders and strategists said their current consensus view is that stocks will hold up better than a few years ago when worries about debt problems in Greece snowballed into angst about the financial stability of bigger economies such as Spain and Italy. Worries of such a spillover jolted European markets in the summer of 2011, sending the Stoxx Europe 600 index down more than 20% between July and September of that year.
“Fundamentally things are better now, there’s much more central bank support, the stability of the world is in a better place than it was three or four years ago,” said Scott Wren, senior global equity strategist at Wells Fargo Investment Institute. “The contagion fear to the same degree is not there.”
Athens will hold a July 5 referendum on whether to accept the austerity measures demanded by its creditors in exchange for further aid. The eurozone has rejected Greece’s request for a one-month extension to its bailout.
On Monday, the CBOE Volatility Index rose 34% to 18.85, the highest close since Feb. 2’s 19.43. The VIX reflects options prices on the S&P 500. Those prices tend to rise rapidly when investors rush to protect themselves against a pullback.
Traders said heading into the referendum this weekend they expect volatility to continue.
“The situation (in Greece) is full of uncertainty,” said Mr. Wren. “Big swings in the Dow and S&P this week are highly likely.”
European stocks fell, but ended off their lows. France’s CAC-40 declined 3.7% and Germany’s DAX lost 3.6%. Greece’s stock market will be closed as long as the banks are.
“Nobody really expected the situation to be as dramatic as it is,” said Rebecca O’Keeffe, head of investment at Interactive Investor. “The prospect of Greece exiting the European Union has increased significantly.”
Developments in Greece’s debt situation have been driving action in U.S. markets in recent sessions. While turmoil in Greece and a potential exit from the euro won’t change the outlook for most U.S. companies, the uncertainty is making some U.S. investors cautious. And it comes at a time when many investors remain worried about elevated valuations on stocks, the slow pace of earnings growth and the path of U.S. interest rates.
“Many market participants were expecting and certainly positioning that some kind of last-minute deal would be worked out,” said Erik Knutzen, multiasset-class chief investment officer at Neuberger Berman.
But over the weekend it became clear the odds of a last-minute deal had fallen sharply and odds increased for a Greek exit, which caused stock investors across the globe to reassess their portfolios, he said.
Mr. Knutzen said even as the possibility of a Greek default or exit from the eurozone increases, his positive view on the eurozone’s economy remains unchanged. In fact, absent much worse news out of the region, he said the selloff in European stocks associated with Greece could be viewed as a possible buying opportunity.
Strong demand for haven assets sent the yield on the benchmark 10-year U.S. Treasury note to 2.333% in late-afternoon trading, down from 2.48% Friday. The 0.147 percentage point decline is the yield’s biggest one-day plunge since November 2011. The yield had tumbled to 2.297% at one point during the earlier global trade. Bond yields fall as prices rise.
In other markets, crude-oil futures fell 2.2% to $58.33 a barrel. Gold futures added 0.5% to $1178.50 an ounce.
The path of U.S. interest rates could grab the spotlight away from Greece later this week. Economic reports culminate with Thursday’s release of the June employment report. Nonfarm payrolls are expected to increase by 230,000 in June, down from 280,000 in May, according to economists surveyed by The Wall Street Journal. Federal Reserve officials consider labor market and inflation data as they debate when to raise short-term rates. Those rates have been held near zero since December 2008. A strong report could bolster expectations of a rate increase later this year.
—Saumya Vaishampayan contributed to this article
Write to Corrie Driebusch at corrie.driebusch@wsj.com
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