Stocks Get Hammered For The Holidays

U.S. markets get a breather this week, closing for Thanksgiving Thursday. The respite can’t come soon enough though, with stocks under significant pressure Monday and down 2.5% just before noon. Renewed uncertainty  had investors selling first and asking questions later after the apparent failure of U.S. lawmakers to reach a deficit reduction deal and fresh worries that the European debt crisis is spreading into Spain and France.

Official word out of Washington was still forthcoming, but it became clear over the weekend that the congressional Supercommittee’s effort at a bipartisan deficit reduction plan has come up empty. The lack of a compromise to cut at least $1.2 trillion from the federal deficit over a decade will likely lead to cuts by sequester, in which nearly across-the-board cuts starting in 2013.

The other shoe to drop may come from the ratings agencies. Standard & Poor’s knocked the U.S. rating down a peg from AAA after the debt ceiling debacle in August. In a note last week, HSBC economists noted that S&P maintained a negative outlook on America’s rating after its downgrade and suggested that more than the bare minimum was required to change the landscape. “Failing to even reach the minimum required, which is where the committee appears to be headed right now, could easily lead to another U.S. downgrade.”
Speaking of ratings agencies, Moody’s warned in a note Monday that the growing spread between French and German bond yields amplifies the fiscal challenges faced by the former’s government, “amid a deteriorating growth outlook.” That comes amid a European debt crisis that has already resulted in leadership changes in Ireland, Portugal, Greece, Italy and, over the past weekend, Spain, where a new center-right government takes power with 10-year bond yields threatening the psychologically critical 7% level.
The Dow Jones industrial average was down 332 points to 11,464 by midday, while the S&P 500 lost 31 points to 1,184 and the Nasdaq fell 70 points to 2,503. The 10-year Treasuy yield dropped to 1.96%, as the perceived safety of U.S. bonds continues to outweigh worries about unsustainable deficits.

With debt and deficit concerns in focus it came as little surprise that financial stocks were among the weaker performers Monday, particularly European names like Societe Generale, down more than 4% on the pink sheets, and Banco Santander, off about 2.5%. American counterparts were hardly unscathed, with Dow components Bank of America and JPMorgan Chase down more than 3% apiece.