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After staging a comeback, Wall Street tumbled in late afternoon trading on concerns the global financial sector may take a hit from Europe's debt crisis.
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As of 3:36 p.m. ET, the Dow Jones Industrial Average fell 161 points, or 1.4%, to 11,936, the S&P 500 slid 17.9 points, or 1.4%, to 1,239 and the Nasdaq Composite slumped 39.7 points, or 1.5%, to 2,647.
Evidence has been mounting that the European Union's debt crisis that was once confined to countries with enormous public debt like Greece may materially impact larger economies across the globe.
Indeed, market participants pegged the late-session selloff on a note from Fitch saying Europe's debt crisis could pose a risk to the American banking system. The ratings company said U.S. banks have "manageable direct exposures to the stressed European markets, but further contagion poses a serious risk."
The Bank of England on Wednesday slashed its near-term growth forecast and inflation expectations, saying a failure of policymakers to reach an effective solution to the crisis will "certainly have significant implications for the U.K. economy." This comes a day after yields on debt of several European countries, like France, that retain top-notch credit ratings rose markedly as contagion fears have grown.
Contagion "is a real fear you have to face," Henk Potts, a wealth equity strategist at Barclays said in an interview with FOX Business, citing concerns that France may be the next focal point of the debt crisis.
Separately, German Chancellor Angela Merkel said Europe's economic powerhouse doesn't support euro bonds, or a common euro zone debt issuance. The sentiment was telegraphed previously, but it comes as yet another reminder of the dwindling options European policymakers have to stem the crisis.
In a sign of the continued tension, the difference between the German bund yield, Europe's safe-haven asset that is akin to U.S. Treasury notes, and French 10-year notes notched a record high on Wednesday, according to an analysis by FOX Business.
So-called sovereign debt spreads "remain at elevated levels, reflecting the skepticism about Europe’s ability to tackle the debt crisis," Gavan Noan, director of credit research at London-based Markit wrote in an e-mail.
The euro fell 0.4% to $1.348 in particularly choppy trading, while euro zone blue chips rose 0.62%. Meanwhile, the benchmark 10-year U.S. Treasury note yields 2.031% from 2.049%.
Energy shares rallied as a result of a big rally in oil. For example, oil-field servicing firm Halliburton (NYSE:HAL) and offshore driller Transocean (NYSE:RIG) zoomed higher.
However, weakness in health care, basic materials and financial stocks offset those gains. Indeed, Alcoa (NYSE:AA), American Express (NYSE:AXP) and Bank of America (NYSE:BAC) were among the worst-performing blue chips.
The benchmark crude oil contract traded in New York recently spiked $3.22, or 3.2%, to $102.59 a barrel -- crossing the $100 threshold for the first time since July. Wholesale RBOB gasoline climbed 4 cents, or 1.6%, to $2.63 a gallon.
The rally was driven by the sale of a key pipeline, analysts say.
The Energy Department's weekly inventory reports showed oil and gas inventories were slightly higher than had been expected in the prior week. Crude stocks fell 1.06 million barrels, a narrower draw than the 1.2 million the was expected. Gasoline stocks, meanwhile, rose 992,000 barrels, topping estimates of a 700,000 fall.
In general, higher supply eases pressure on prices, so unexpectedly high stocks could have a bearish affect in the energy markets. Indeed, gasoline significantly pared its gains after the report.
On the U.S. front, retail giant Target (NYSE:TGT) posted third-quarter profits of $555 million, blowing past analysts' expectations, and also signaled its current-quarter earnings would be stronger than anticipated. Technology heavyweight Dell (NASDAQ:DELL), however, revealed better-than-expected earnings, but lacking sales that pushed shares down 2%.
Traders will also get a slew of data to parse through on the U.S. economy.
Inflation at the consumer level fell 0.1% in October from September -- the first fall since July as energy prices tumbled 2%. Excluding the more volatile food and energy component, prices were up 0.1% as expected. However, these data don't include a more recent rise in energy prices, which may push prices up in the next reading.
A separate report showed industrial output expanded at a rate of 0.7% in October from September, topping expectations of a 0.4% gain. Capacity utilization rose slightly to 77.8%, which was the highest reading since July 2008.
The data suggest "manufacturing output has picked up from a soft patch over the summer and that auto production continues to rebound," Peter Newland, an economist at Barclays Capital wrote in a note to clients. "Any supply constraints resulting from flooding in Thailand have not, as yet, had a material effect."
In metals, gold fell $7.90, or 0.44%, to $1,774 a troy ounce.
European blue chips rose 0.62%, the English FTSE 100 fell 0.15% to 5,517 and the German DAX slipped 0.5% to 5,913.
In Asia, the Japanese Nikkei 225 slid 0.92% to 8,463 and the Chinese Hang Seng plummeted 2% to 18,961.