Why the Dow Plunged Today

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The Dow Jones Industrial Average (INDEX: ^DJI) plunged this morning, the largest drop since early December, as investor concerns over the Greek debt deal intensified and investors reacted to slowing growth around the world.

Index

Change

Ending Value

Dow Jones Industrial Average-203.66 [-1.57%]12,759.15
S&P 500 (INDEX: ^GSPC) -20.97 [-1.54%]1,343.36

The market was down today as investors grew concerned over the Greek bailout. The Institute for International Finance warned that a default by Greece could deal over a trillion dollars in damage to the European economy. Investors are worried that if conditions in Greece and the rest of Europe continue to worsen, the U.S. could also experience a slowdown. A key piece of the 130-billion-euro ($172 billion) bailout deal for Greece is a voluntary bond swap with a deadline of Thursday.

Instead of the the Greek government defaulting, investors holding a total of roughly 200 billion euros of Greek bonds are being offered a package worth 46.5% of the face value of their bonds. Of the 46.5%, 15% will be swapped for two year bonds. The other 31.5% will be new long-term Greek bonds with riders that increase the payout if the Greek economy outperforms expectations. The Greek government needs at least 66% of bond holders to agree to the swap. If it meets that threshold, the Greek government can require the remaining holdouts to agree to the swap. A bailout was needed so Greece could avoid defaulting on 14 billion euros in bonds due March 20. If the debt swap fails, investors are unsure the contagion Greece could create.

In other bad news from around the globe, Brazil added to the negative news today when it reported growth of just 2.7% in 2011. This is markedly below last year's growth of 7.5%. The news pushed Brazil's main index down 2.7%, with 65 of its 70 stocks off for the day. The market is also still reacting to China's news yesterday that it will target a 7.5% growth rate. This is lower than the 8% growth rate the country has been targeting since 2004. Fool analyst Rick Munarriz isn't worried, however, and has written about Chinese stocks he's keeping an eye on.

The only winner
Intel
(NAS: INTC) was today's only Dow component to finish up for the day. Intel rose 0.24% to $26.60. Intel announced its newest Xeon server chip, which delivers up to 80% better performance while using less energy. Investors are excited, as spending on data centers is expected to continue its explosive growth of the past few years.

The biggest loser
Alcoa (NYS: AA) was the biggest mover of the day, down 4.05%, to $9.47. With its cyclical results highly dependent on GDP growth, Alcoa would be significantly hurt if the Greek debt deal didn't go through, as 20% of its business is in Europe. News of slowing growth in Brazil also puts a large damper on Alcoa's future, since Brazil makes up over 5% of Alcoa's business. However, there are some things to like about Alcoa, and Fool analyst Sean Williams thinks Alcoa will outperform the market over the next few years.

The best approach
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At the time this article was published Dan Dzombakholds no position in any company mentioned.Click hereand like his Facebook page to follow his investing articles. The Motley Fool owns shares of Intel.Motley Fool newsletter serviceshave recommended buying shares of Intel. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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