Published On: Sat, Nov 10th, 2012

Dow Jones Posts Largest One-Day Decline for the Year

Around the world, the delay in a Greek decision on austerity measures has overshadowed the stock market. Investors are concerned that ministers in the Eurozone may not provide aid to Greece. The Stoxx Europe 600 index dropped 0.2 percent throughout the day on Thursday to end at 270.58. On Wednesday, it closed 1.4 percent lower. United States stock markets also fell throughout the day.

Earlier in the day, the Stoxx Europe 600 index managed to rise after the Greek parliament managed to approve of new austerity measures. One European official reported to Bloomberg News that the new measures may not be enough. The official also was cited saying that the Eurozone may delay the next installation in Greece’s bailout plan until the end of November. With this news at the forefront of every investors mind, the Athens General Index retreated by 3.8 percent to 794.67 for the day. Stock in the National Bank of Greece fell by more than ten percent.

Other European Stock Markets

The French CAC 40 index dropped a slight 0.1 percent to end the day at 3,407.68 while The German DAX 30 retreated 0.4 percent. The FTSE 100 index lost 0.3 percent for the day to end at 5,776.05. Stock in Siemens managed to increase 1.8 percent following a report that it would decrease costs in 2014 by six billion euros.

KBC Group reported that it made a third-quarter profit of 531 million euros. Last year, the company posted a 1.58 billion euro loss. After this news came out, stock in KBC Group shot up by 5.96 percent. Heidelberg Cement also posted gains of 3.41 percent. The cement maker enjoyed higher profits for the third quarter and is forecasted to have better revenue for the entire 2012 fiscal year.

Balfour Beatty stock fell 17 percent amid lower profitability forecasts for 2012. United States construction remains low and the United Kingdom’s construction market has not increased as much as Balfour Beatty had expected. G4S also retreated 3.1 percent. The United Kingdom’s Ministry of Justice stated that the security corporation would cease operations at the East Yorkshire-based Wolds prison as early as next July.

Shares in Skanska slumped 1.1 percent for the day. The Swedish-based construction company had lower than expected earnings in the third-quarter. Skanska also warned investors of weaker demand in Nordic countries. After reporting decreased net profit for the last quarter, Deutsche Post lost 3 percent for the day.

In Spain, a bond auction totaling 4.76 billion euros was well-received by investors. Spain now has enough funding to complete the fiscal year. The benchmark IBEX-35 in Spain did not respond as well as expected to the news and finished the day 0.5 percent lower at 7,624.10.

Wall Street Slumps

The Dow Jones Industrial Average reported its largest drop for a single day of the entire year on Wednesday. On Thursday, it retreated a total of 121.41 points to end at 12,811.32. For the last two days, the Dow Jones Industrial Average has lost a total of 434 points. The Nasdaq composite index fell 41.61 to 2,895.58 while the Standard and
Poor’s 500 index slumped 17.02 points to end the day at 1,377.51.

Earlier this week, the United States presidential election ended and President Obama was elected for a second term in office. Despite a brief gain, investors quickly returned to their focus on European debt issues. Concern over the fiscal cliff in the United States also caused many analysts to remain worried about the outlook for the remainder of the year. Politicians in the United States must come to an agreement on the budget by January 1 if they want to avoid automatic spending cuts and tax increases. With this in mind, the Dow Jones lost 313 points on Wednesday. Overall, this is the fifth worst single-day drop on the day after a United States presidential election. The largest drop ever came in 2008 during the US financial crisis.

Despite the fall in share prices on Wednesday, stock markets are still up for the year. They are lower than their September peak. During this month, the United States Federal Reserve Bank announced that it would start a third round of quantitative easing. This measure prompted the Standard & Poor’s 500 index to close at the year’s high of 1,465 on September 14. The September 14th peak of the stock market marked its highest level for the last five year.

Although the Standard & Poor’s 500 index is still six percent lower than that peak, it is still ten percent higher for the year to date. As the year draws to a close, United States stock markets may drop as investors attempt to avoid an increase in the capital gains tax. Enacted by President George W. Bush, these tax cuts are expected to expire on January 1. With a rising $1 trillion budget deficit, the United States government is not expected to renew the tax cuts as they attempt to decrease their deficit.

During the morning session, the Dow Jones rose by 48 points following two reports from the United States. One report indicated that the United States trade deficit was at its lowest level for nearly two years. This drop in debt was attributed to record high exports out of the United States. The United States Labor Department also released the unemployment report for the week. People seeking unemployment payouts dropped by 8,000 last week to 355,000. This positive news shows that the United States may be in the process of gradually recovering from the recession.

Dean Foods increased 32 cents to end at $16.40. The company reportedly had a profit of $36 million for the third quarter. During the third quarter of 2011, Dean Foods had operated at a $1.5 billion loss. CBS shares advanced by 36 cent to $34.36 due to a 16 percent rise in earnings. Despite falling revenue from advertisements, the company has managed to take in larger profits from the fees paid by TV distributors. Slowed growth for the third quarter prompted shares in Monster Beverage to drop by $0.57 to end the day at $44.40.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.