Dow Tumbles 162 Points on European Debt Anxiety


Another day, another deep loss on the Dow. Can it really be only five days since the European Union unveiled its trillion-dollar shock-and-awe rescue plan? The bailout package might have quashed fears of a wider credit crisis overtaking the Continent, but it's done nothing to tamp down volatility.

The blue-chip index has made a triple-digit move in 11 of the last 14 sessions, while the S&P Volatility Index (VIX.X) -- also known as the investor fear gauge -- has popped about 75%. Sure, the most debt-burdened nations of Europe are solvent for the time being, but the market's found a new source of anxiety: The massive spending cuts tied to the bailout package could consign the EU to years of sub-par growth.

The Dow Jones Industrial Average ($INDU) dropped 162 points, or 1.5%, to settle at 10,620, while the broader S&P 500 ($INX) shed 22 points, or 1.9%, to 1,136. The tech-heavy Nasdaq Composite ($COMPX) fell 48 points, or 2%, to close at 2,347.

"Markets that had rallied earlier this week have been paring those gains as consideration of the ramifications of austerity programs tied to the bailout on regional and even global growth are being weighed," John Stoltzfus, market strategist at Ticonderoga Securities, told client in a Friday note. "Economic and market workouts are historically periods of uncertainty, repair and recovery."

Anything that throws doubt on European economic prospects is bad news for U.S. equities. At $18 trillion, the 27-member EU's gross domestic product is equivalent to the economies of the U.S. and China combined. Stocks only look cheap if analysts' revenue and profit forecasts are on the mark, but craziness in the currency markets makes it tough to get a bead on what overseas sales will ultimately do to corporate profits.

The relentless pounding of the euro has it trading at an 18-month low against the dollar. Meanwhile, the U.S. Dollar Index, which measures the greenback against a trade-weighted basket of six major currencies, is vaulting higher. It popped more than 1% on Friday alone -- a huge move in currency terms.

The latest wave of selling has the S&P 500 about 7% off it's 52-week high notched less than a month ago. Both the Dow and the broader market are now positive for the year, albeit just barely, with each up about 1.6% in 2010.

"It appears so far that even a commitment of a bailout at just under a trillion dollars is not enough to quell the worry and speculation that currently roil the markets," Stoltzfus writes. "Stay tuned."