Stocks Tripped Up by Greek Political Disarray


NEW YORK (TheStreet) -- Stocks tumbled Monday as Greece's inability to break a political impasse fueled speculation the country may eventually have to leave the eurozone.

Worries about the stability of the single-currency bloc were also being aggravated by Spain's financial health, the outcome of local elections in Germany, and weak regional economic data.

The Dow Jones Industrial Average dropped 125 points, or 1%, to close at 12,695. The blue-chip index ranged from 12,661 to 12,819 during the session.

The S&P 500 gave back 15 points, or 1.1%, to finish at 1338, just 2 points above its session low. The Nasdaq suffered the biggest hit, surrendering 31 points, or 1.1%, to settle at 2902. The tech-heavy index's low for the day was 2899.

Breadth within the Dow was negative with 27 of the index's 30 components moving lower. The biggest laggards within the blue-chip index were American Express, ( AXP), Bank of America ( BAC), Caterpillar ( CAT), General Electric ( GE), Intel ( INTC), JPMorgan Chase ( JPM), Microsoft ( MSFT), and United Technologies ( UTX).

Cisco ( CSCO), a big loser last week after its poor outlook, was catching a bounce, up 1.2%.

In the broader market, the number of losers outpaced winners by a ratio of 5-to-1 on the New York Stock Exchange and 3-to-1 on the Nasdaq.

The VIX, the so-called fear gauge, jumped 10% to 21.87. 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. The VIX had earlier hit its highest levels since Jan. 16.

Eurozone concerns came back to the forefront Monday as Greece continued to struggle to form a new government. The country's various political parties have clashed over next steps for the European Union/International Monetary Fund bailout deal, which involves harsh austerity measures that much of the Greek population has rejected. The gridlock has increased the possibility that Greece will have to call new general elections.

Greek President Karolos Papoulias tried to call together a meeting Monday to resume talks on forming a new government, but Alexis Tsipras, the leader of the radical leftist Syriza coalition, refused to join. The moderate Democratic Left party said it wasn't going to join pro-bailout parties in a coalition without the Syriza party. Eurozone finance ministers remain adamant that Greece abide by the austerity measures.

"There's a lot of speculation of the possibility of Greece exiting the euro and that could be a problem that sets a whole bunch of dominos in motion," said Sean Clark, chief investment officer of Clark Capital Management. "It sets a template for other countries to leave the euro."

"Investors wouldn't want to invest in those countries if they leave the euro and investors would demand a very, very high premium for debt."

The markets were testing their March lows Monday, and Clark said if the S&P 500 fell below the 1340 level, the next range of support would be in the 1290-1300 range.

Peter Cardillo, chief market economist at Rockwell Global Capital, believes that if the S&P 500 can hold in the 1335-1340 range, it would indicate that the worst of the decline is over for now.

"If it doesn't hold these levels, then the fear factor has gotten to the point where we're headed for a serious correction," he said.

London's FTSE finished down 2% and the DAX in Germany shed 1.9%. Investors were also feeling the jitters from the tenuous health of Spain's banking sector, the loss of an important election in Germany's largest state by Chancellor Angela Merkel's ruling party, and the report from the European Union's statistics office that industrial production in the euro area fell 0.3% in March from February.

" What happened with Merkel is significant because it adds to political uncertainty all over Europe," said Cardillo. "Portugal, Spain, Italy, Greece, Ireland have all been political victims of this. To see even Merkel be a political victim of a situation where she reigns is even more concerning." Earlier, the euro fell to a three-month low against the dollar.

The Hang Seng Index in Hong Kong closed down 1.2% and Japan's Nikkei average finished up 0.2% as concerns about Greece overshadowed China cutting bank reserve ratios to combat evidence of slowing economic growth in the world's second largest economy.

The benchmark 10-year Treasury rose 21/32, diluting the yield to 1.775%. The greenback was up 0.5%, according to the dollar index.

The June crude oil contract fell $1.40 to settle at $94.78. a barrel. June gold futures fell $23.10 to $1,561 an ounce.


In corporate news, Groupon ( GRPN) shares surged more than 12% in after-hours action, building on a rally in the regular session, after the online daily deals company blew past Wall Street's expectations for its first-quarter results with revenue rising nearly 90% from year-ago equivalent levels.

JPMorgan announced Ina Drew is retiring from the chief investment officer post in the wake of last week's disclosure of a massive trading loss in the bank's synthetic credit portfolio. The stock lost 3.1%, and is now down 12.2% since Thursday's close at $40.74, just before the disclosure of the trading loss, which could climb as high as $4 billion, according to some published reports.

Over the weekend came news that Yahoo! ( YHOO) CEO Scott Thompson has stepped down. The company has named Ross Levinsohn to serve as CEO on an interim basis. It's also reached a deal to settle its proxy fight with activist hedge fund manager Daniel Loeb and his firm Third Point LLC. The stock gained 2%.

Shares of Chesapeake Energy ( CHK) rose nearly 5% following reports that Carl Icahn has taken a significant stake in the company. Chesapeake also said Friday that it's received a $3 billion loan from Goldman Sachs and Jefferies Group.

The board of Avon Products ( AVP) is considering a buyout offer from Coty that it previously rejected after Coty lifted the terms of the deal, Avon said Sunday. Avon shares rose 3.8% to close at $20.95.

Coty said last week that it would increase its bid for Avon to $24.75 a share, or almost $10.7 billion, from its previous offer of $23.25, or $10 billion.

-- Written by Andrea Tse in New York.

>To contact the writer of this article, click here: Andrea Tse.

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