Stocks Drop on Greek Political Turmoil

NEW YORK (TheStreet) - U.S. stocks dropped Tuesday as political turmoil in Greece renewed concerns about the country's ability to meet the terms of its bailout and remain a member of the euro zone.

The major U.S. equity indices did stage an impressive bounce off their lows late in the session though, provide some small silver lining for the bulls.

The Dow Jones Industrial Average finished lower by 76 points, or 0.6%, to close at 12,932. The blue-chip index ran as low as 12,810 during volatile trading, a level unseen since intraday action on April 23.

The S&P 500 shed 5.86 points, or 0.4%, to finish at 1364. The index's session low was 1348, a level unseen in two months.

The Nasdaq lost nearly 12 points, or 0.4%, at 2946. Its nadir for the day was 2900, which it also hasn't glimpsed in two months.

Demand for bonds and the U.S. dollar spiked higher, while gold and other commodities endured a deep sell-off, with gold prices briefly falling below $1600 an ounce.

Breadth within the Dow was negative with 25 of the index's 30 components finishing lower. The biggest percentage losers among the blue chips were Hewlett-Packard ( HPQ), Alcoa ( AA), Bank of America ( BAC), Cisco ( CSCO) and McDonald's ( MCD).

Bank of America shares lost more than 2% as CEO Brian Moynihan faces a May 18 deadline to give testimony in a lawsuit brought by MBIA ( MBI), an event that's seen as putting increased pressure on the bank to reach a settlement expected to cost some $2 billion, according to an analyst.

Separately, the bank has also begun reaching out to eligible borrowers to reduce principal on their mortgages by as much as $200,000 as part of its mortgage settlement pact with states attorneys general. The bank holds its annual shareholder meeting on Wednesday.

Walt Disney ( DIS), Merck ( MRK), Johnson & Johnson ( JNJ), AT&T ( T) and Verizon ( VZ) finished in the green.

Disney reported its quarterly results after the bell, beating expectations with a fiscal second-quarter profit of 58 cents per share vs. the consensus estimate of 55 cents. Shares were up 2.4% in aftermarket trading, after climbing more than 1% on Tuesday.

In the broader market, losers outpaced winners by a margin of nearly 2-to-1 on the New York Stock Exchange, and were nearly even on the Nasdaq.

The VIX, the so-called fear gauge, ended the session at 18.78 after cresting above 20 earlier in the session. The VIX measures implied volatility through options pricing for the S&P 500. A reading above 20 is seen as the point where fear is on the rise.

Stocks barely budged Monday as Wall Street reacted with restraint to the shifting political landscape in Europe following weekend elections in France and Greece. But investor worries were intensified Tuesday as the political gridlock in Greece showed no signs of relief.

"Greece is still facing a very, very difficult task in order to stay in the eurozone," said Dan Greenhaus, chief global strategist at BTIG.

The Greek conservative New Democracy party, which garnered most of the votes in Sunday's election, has been unable so far to form a new government. The onus is now on Alexis Tsipras, the leader of the second-biggest party, the radical left Syriza. His party wants to wipe out the European Union austerity measures tied to the financial bailouts.

Expectations are that Tsipras won't reach any breakthroughs either, and that Greece will eventually be forced to hold another general election. Without a government to negotiate the next tranche of a bailout, the global markets face the growing risk of Greece defaulting on its debt and exiting the euro.

"If/when that Tsipras' task fails, a second round of elections will need to take place, most likely on or around June 17th," said Greenhaus. "If/when those elections fail to produce a government in favor of the agreed upon austerity measures, it would be all but certain that external financing would cease and the €31 billion or so set to be disbursed this quarter would ... not."

The next government must decide by June if it will pay interest on $250 million of 4.5% notes expiring in 2016, and by next week if it will pay €436 million ($568 million) due on a floating-rate note issued 10 years ago.

In Europe, London's FTSE fell 1.8% and the DAX in Germany settled down 1.9%. The Hang Seng Index in Hong Kong finished down 0.3%. Japan's Nikkei average rose 0.7%.

Also adding to the concern about the eurozone's stability were reports that Spain may close to bailing out Bankia, the country's third largest bank by assets.

The benchmark 10-year Treasury rose 10/32, diluting the yield to 1.844% and the greenback was up 0.36%, according to the dollar index.

As Facebook kicked off its roadshow in Manhattan this week, Dan Neiman, co-portfolio manager of the Neiman Large Cap Value Fund, is hoping that the social media company's debut, expected on May 18, can produce some cheer for the markets.

"Any IPO coming out will hopefully create some positive outlook in what's happening in the world and in our country," said Neiman. "I think the better a company like Facebook does the better for the U.S. markets and economy."

The company is already on the radar of the sell side with analysts scrambling to gush over the stock's potential even before they know where it's going price.

In commodity markets, the June crude oil contract fell 93 cents to settle at $97.01 a barrel. June gold futures shed $35 to settle at $1,604.50 an ounce and wiping out all its gains for 2012 as the strengthening dollar reduced the metal's appeal as a U.S.-currency hedge and rendered it pricier for overseas currency users to buy the dollar-denominated asset.

In corporate news, Wendy's ( WEN) reported first-quarter earnings Tuesday of $12.3 million, or 3 cents a share, a turnaround from a year-earlier loss of $1.4 million. Excluding items, earnings in the latest quarter came in at a penny a share. The fast food chain's first-quarter sales were $519.9 million, up from $509.3 million a year earlier.

The performance fell short of the average analysts' view for a profit of 3 cents a share on sales of $608 million, and the stock shed 4%.

McDonald's ( MCD) said Tuesday that global same-store sales in April rose 3.3%. Last month, the fast food chain said it expected sales to rise about 4%. Shares of Mickey D's fell 2%.

Neiman, who holds the stock in his fund, said, "I think that McDonald's April sales painted a picture that things aren't as rosy as they seemed in the first quarter. A company like McDonald's will have their ups and downs, but it paints picture on a global scale."

Rackspace Hosting ( RAX), the cloud hosting company, reported first-quarter earnings of $23.2 million, or 17 cents a share, up from year-earlier earnings of $13.8 million, or 10 cents a share. Analysts, on average, expected earnings of 18 cents a share. The stock fell nearly 9%.

Fossil ( FOSL), which earns a third of its revenues from Europe, reduced its 2012 earnings forecast. Shares of the specialty-retailer fell 37%.

So far, 85% of S&P 500 companies have reported, with 67% of those beating estimates, 9% matching them, and 24% falling short, according to data from Thomson Reuters.

Yahoo! ( YHOO) board member Patti Hart is expected to step down later this year, according to press reports. The board recently initiated probe that will examine Hart's role in hiring CEO Scott Thompson, whose academic record has come under scrutiny. Shares finished flat at $15.36.

-- Written by Andrea Tse and Shanthi Bharatwaj in New York.

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