Why the Dow's Crying "Mamma Mia"
After a strong opening, the Dow Jones Industrial Average fell sharply on Italian election worries, finishing down 216 points, or 1.6%, with 100 points disappearing in just the last 15 minutes of trading. The broad-based S&P 500 was down more than 1.8%, and the VIX, Wall Street's volatility indicator, jumped 34%.
Concerns about Europe had been relegated to the back burner for the past few months, but returned with a vengeance as Italians sent a strong anti-austerity response at the ballot box today. The vote will likely lead to an unstable coalition government, and has sparked concerns that the new government may not control spending and keep the deficit below 3% of its GDP, as required by the European Central Bank. Italians' disgust with their government could be seen in former comedian Beppe Grillo's newly formed Five Star Movement party winning 25% of the vote and current Prime Minister Mario Monti's party winning just 10%. Complete results will be known tomorrow.
Seemingly overlooked by investors today was the upcoming sequester, which President Obama addressed, asking Congress to avoid the broad spending cuts "with just a little bit of compromise." With three days left until the deadline, however, both parties seemed at a standoff with no major steps being taken.
Not surprisingly, Bank of America led the losers on the Dow. The financial giant is among the most volatile of the blue chips, and financial companies are particularly sensitive to news such as today's events that could jeopardize the Eurozone. Italy is the biggest of the turbulent economies within the Eurozone and further uncertainty will raise the risk premium for banks as well as Italian borrowing rates and the possibility for a default.
McDonald's was only one of three Dow stocks to finish in the green today, gaining 0.9% to make it the day's winner. The burger chain is going ex-dividend on Wednesday, and got an endorsement of sorts from Oscar winner Jennifer Lawrence on the red carpet yesterday. Toronto's The Globe and Mail also ran a report over the weekend showing that the Golden Arches is challenging Tim Horton's supremacy north of the border.
Bank of America's stock doubled in 2012. Is there more yet to come? With significant challenges still ahead, it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, analysts Anand Chokkavelu, CFA, and Financials Bureau Chief Matt Koppenheffer lift the veil on the bank's operations, including three reasons to buy and three reasons to sell. Click here now to claim your copy, and as an added bonus you'll receive a full year of FREE updates and expert guidance as key news breaks.
The article Why the Dow's Crying "Mamma Mia" originally appeared on Fool.com.Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends and owns shares of McDonald's. It also owns shares of Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.