Dow Plunges Amid Concerns Over Italy‘s Political Turmoil

The S&P 500 and the Dow Jones Industrial Average suffered their biggest one day percentage drop in a month on Tuesday as political turmoil in Italy sparked concerns about the stability of the euro zone and shares of U.S. banks tumbled.

The political crisis in Rome, and the threat to the euro project it represents, triggered a rush to traditional safe havens like U.S. debt, pulling down U.S. 10-year bond yields and in turn spurring losses for U.S. banks.

JP Morgan corporate and investment bank chief Daniel Pinto drove another round of selling by saying his bank’s second-quarter markets revenue would be flat on the year.

The market’s main measure of short term volatility, the CBOE Volatility index, spiked 3.9 points to 17.13, its highest since May 3.

“We’re going to see a lot more days like this. This is what 2018 is going to be like,” said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma.

“It doesn’t look, smell or feel like 2017 where we had no volatility, zero tension. You had 12 straight months going higher, that’s unheard of.”

The Dow Jones Industrial Average fell 391.64 points, or 1.58 percent, to 24,361.45, the S&P 500 lost 31.47 points, or 1.16 percent, to 2,689.86 and the Nasdaq Composite dropped 37.26 points, or 0.5 percent, to 7,396.59.

The Dow was down 512 points at its worst slide of the day.

The S&P 500 opened below its 100-day moving average, a key technical level. All 11 of the major S&P sectors were in the red.

Yield on the benchmark U.S. 10-year Treasury notes yield fell to their lowest level since mid-April at 2.84 percent. 

BIG SWINGS

Wall Street has seen a surge in volatility since the start of February, driven by President Trump’s trade attacks on China and concerns over North Korea.

Those moves have slowly eased off, however: the Dow fell by more than 1 percent on five days in each of February and March but only three times in April. On Friday, the VIX opened at its lowest since late January, only 13 points compared to a peak of 50 hit on Feb. 6.

Still, Pinto’s comments pushed JP Morgan shares 4.6 percent lower, their biggest fall since the February sell-off and other major banks followed, pushing the S&P banking index down xx percent.

Shares of energy companies were also led lower by a 1.9 percent drop in U.S. crude futures on expectations that Saudi Arabia and Russia could pump more crude to compensate for a potential supply shortfall. 

Exxon Mobil fell 1 percent, while Chevron was down 1.3 percent. Halliburton slipped 0.9 percent.

“When you look at lower yields and the lower energy, it’s taking a real bite out of the energy complex and certainly the financial complex,” said Art Hogan, chief market strategist at B. Riley FBR in Boston.

“I don’t think anything has changed (in the last hour or so) but when you call into question one of the larger economies in the euro zone, and what that will mean to the stability of the euro zone, its certainly going to manifest itself into a larger punishment than we saw this morning.”