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After hitting fresh five-year highs last week, Wall Street experienced its steepest drop of the year Monday as concerns about the embattled eurozone boiled back to the surface.
The Dow Jones Industrial Average fell 130 points, or 0.93%, to 13880, the S&P 500 dipped 17.5 points, or 1.2%, to 1496 and the Nasdaq Composite slid 47.9 points, or 1.5%, to 3131.
Every S&P 500 closed in the red Monday, led by technology, health-care and consumer discretionary names. Volatility spiked 13.6% as tracked by the CBOE's VIX, often referred to as Wall Street's fear gauge. Traders also took cover in U.S. Treasury bonds, sending the yield on the benchmark 10-year note down to 1.961% from 2.021%.
Eurozone Worries Back in the Spotlight
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After fading deep into the background, concerns about the still fragile political environment in Europe flared up again on Monday, putting stocks there under considerable pressure.
In Spain, Prime Minister Mariano Rajoy faced increasing calls to resign, and falling public support, after newspaper El Pais reported last week his Popular Party was involved in a slush fund scandal in which individuals, including Rajoy, received non-salary payments for at least 18 years. Rajoy firmly denied the allegations, but it wasn't enough to stem a sharp slide in an El Pais opinion poll that ranks the party at a slim 24% approval rating.
Then in Italy, analysts said there was a rising specter that national elections set to be conducted later this month will result in parliament where neither side has total control. The country, Europe's third-biggest economy, is still struggling with a heavy sovereign debt load, slow growth, and a public broadly tired of austerity.
"The risk of ungovernability remains very high, in our view," Silvio Peruzzo, an economist at Nomura, wrote in a note to clients. "...fragmentation of the political landscape renders it increasingly likely that the shape of the government will be decided as a consequence of post-election alliances rather than from a decisive vote."
Most important from a market perspective, the yields on both countries benchmark 10-year bonds climbed Monday. Italy's borrowing costs are at 4.39%, up 0.06-percentage point from last week, while Spain's costs rose 0.11-percentage point to 5.31%. Both are still far off crisis-era highs, but sufficient to stoke concerns. Indeed, the Euro Stoxx 50, which tracks eurozone blue-chip stocks, sold off by more than 1%.
Energy Futures Under Pressure
Oil futures were down sharply as well as tensions between the West and Iran cooled over the weekend. The benchmark U.S. contract skidded 96 cents, or 0.98%, to $96.80 a barrel. Wholesale New York Harbor gasoline dipped 0.84% to $3.028 a gallon.
In metals, gold dropped $4.80, or 0.29%, to $1,666 a troy ounce.
The Euro Stoxx 50 slid 1.2% to 2678, the English FTSE 100 dropped 0.9% to 6290 and the German DAX sunk 0.77% to 7774.
In Asia, the Japanese Nikkei 225 climbed 0.62% to 11260 and the Chinese Hang Seng dipped 0.16% to 23685.