Wall Street Thrashed by Cascading Debt Fears; Dow Knocked Into Red for 2011


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Wall Street was pummeled on Monday, while recovering from the lows of the session, as sovereign-debt anxiety cascaded through global financial markets and sent traders scurrying into safe havens.

Today's Markets

The Dow Jones Industrial Average slid 249 points, or 2.1%, to 11,547, the S&P 500 fell 22.7 points, or 1.9%, to 1,193 and the Nasdaq Composite dropped 49.4 points, or 1.9%, to 2,523.

After weeks of headlines on Europe's debt debacle driving global equity markets, Wall Street's attention has once again shifted to Washington.

All 30 components ended the day in negative territory, knocking the blue-chip index into the red for 2011 and to its lowest level in a month.  The S&P 500, which is more closely watched by market participants, sunk under the 1,200 mark for the first time since October and fell beneath an important technical resistance point.

Financial and industrial shares took the biggest hit, but no major sector finished the day unscathed. Volatility rose 2.8% on Monday, while U.S. Treasury yields slumped as traders raced out of equity markets.  The benchmark 10-year note yields 1.963% from 2.012%.

In a sign of the breadth of the selling on Wall Street, roughly nine out of ten shares traded on the New York Stock Exchange were in declining issues.

Déjà Vu: Debt Panel Deadlocked

A congressional Super Committee tasked with crafting a bi-partisan solution to tackle the nation's mounting debt burden appeared stuck at a stalemate with the deadline looming just days away. The 12-member panel was mandated to craft the legislation as part a last-minute agreement over the summer to raise the nation's debt ceiling, staving off what could have been a costly default of American debt.

A failure of the committee to enact the legislation will trigger $1.2 trillion in Federal spending cuts that mostly take effect in 2013.  Economists say these cuts may be a substantial drag on the world's biggest economy starting in that year, but the more immediate concern may be to already jittery global financial markets that fear the political gridlock will prompt another downgrade of American debt.  Standard & Poor's cut the country's top-notch rating over the summer, sparking a powerful, global rout.

Analysts at Nomura warned clients in a note on Monday that the markets' reaction this time around may be "difficult to predict," noting that a "complete failure" may not be priced in, an indication that markets across the world could be in for more selling if the effort totally collapses.

Still, the deep divide within the debt panel, and the ensuing indecision, did not come as a complete surprise, many market participants say: The "only surprising aspect to the selloff is that it hadn’t already been completely discounted," Ameriprise Chief Market Strategist David Joy wrote in an e-mail.

Wall Street posted its worst weekly performance in nearly two months last week, with the Dow shedding close to 3%, and the broader S&P 500 and Nasdaq tumbling nearly 4%.

Market participants were also grappling with continued uncertainty on Europe's debt crisis.  Moody's warned on Monday that climbing debt yields and a dimming economic picture could be negative for its outlook on French debt.  France is the euro zone's second-biggest economy and one of the currency bloc's six triple-A rated nations.

Credit Suisse also issued a note to clients saying the currency bloc has entered its "last days" as we know it, adding the European Union will likely need to take "extraordinary" measures by early next year to keep the crisis from imperiling even the continent's strongest banks.

The European Council is set to unveil a proposal for so-called euro bonds, which would be joint euro zone debt issuance, according to a report by The Wall Street Journal.  Germany, the bloc's economic powerhouse, has repeatedly rebuked such plans that are highly unpopular from a political perspective in that country.  The EC's plan is yet another sign that Europe is struggling to contain its crisis that started in its debt-laden periphery from striking at its core.

European blue chips plunged 3.2%, while the euro rose 0.02% to $1.351.

Wall Street Shrugs Off Upbeat Data

Existing home sales unexpectedly climbed in October from the month prior.  The National Association of Realtors said sales of previously-occupied, single-family homes jumped 1.4% to an annualized unit rate of 4.97 million, topping expectations of a 2.2% decrease. Stocks were little changed on the report.

The housing industry has been hit hard by a high supply of houses on the market, stubbornly-low prices and still-tight lending conditions.

Energy markets were mixed despite big losses in equity markets.  The benchmark crude oil contract traded in New York slid $1.41, or 1.4%, to $97.41 a barrel.  Wholesale RBOB gasoline fell 1 cent, or 0.43%, to $2.49 a gallon.

In metals, gold dropped $46.50, or 2.7%, to $1,679 a troy ounce.

Corporate News

Gilead Sciences (NASDAQ:GILD) revealed plans to acquire Pharmasset (NASDAQ:VRUS) in a deal valued at $10.4 billion.  Gilead's $137 a share offer represents an 89% premium to the viral-drug maker's closing price on Friday.

Alleghany (NYSE:Y) is buying Transatlantic Holdings (NYSE:TRH) for $3.4 billion in cash and stock.

Foreign Markets

European blue chips plunged 3.2%, the English FTSE 100 fell 2.4% to 5,233, and the German DAX slid 3.2% to 5,505.

In Asia, the Japanese Nikkei 225 dipped 0.32% to 8,348 and the Chinese Hang Seng slid 1.4% to 18,226.