The link between lower US stocks and a rising dollar continued today as we returned form Thanksgiving, this volatility and gapping has gone on since last week and is expected thru year end as investors focus on macro issues versus corporate balance sheets.
Stocks fell sharply in early trading Monday as concerns about the European debt crisis took the edge off a strong weekend of holiday sales. The euro fell to a two-month low and investors flocked to the safety of the dollar and U.S. Treasurys after the European Union signed an agreement Sunday to provide nearly $90 billion in rescue loans for Ireland.
The move is designed to shore up Ireland's cash-strapped banks, but it does little to relieve investors' concerns about other European countries, including Portugal and Spain. "The good news is they're making progress with Ireland," said Alan Gayle, senior investment strategist for RidgeWorth Investments. "The concern is that there is more work left to do for the EU going forward."
As a result, traders largely ignored the upbeat news on holiday retail sales in the U.S. The National Retail Federation, a trade group, estimated that 212 million shoppers visited stores and websites during the first weekend of the holiday season, up from 195 million last year.
Online spending also rose more than 14 percent from Thanksgiving Day through Saturday, according to IBM's Coremetrics. A fuller picture on spending will come Thursday when retailers report their November revenue.
Investors have been hoping that consumers, who have generally been spending cautiously since the recession, would feel more comfortable about shopping during the holidays. Many economists believe that consumers will have to spend more freely for the economy to put together a stronger recovery. However it's too soon to tell if sales will remain strong through Christmas.
The Dow Jones industrial average fell 114.74 points, or 1 percent, to 10,977.26 in late morning trading. Twenty-seven of the 30 stocks in the average fell. It was the first time since last Tuesday that the Dow surrendered the 11,000 level in intraday trading. The Standard & Poor's 500 index fell 9.75, or 1 percent, to 1,179.65. Nine of the 10 industries in the S&P 500 fell. Financial stocks eked out a minor gain, rising 0.1 percent. The technology-heavy Nasdaq composite index dropped 26.03, or 1 percent, to 2,509.11 European stocks also traded sharply lower. In London, the FTSE 100 index was down 1.6 percent. Germany's DAX fell 1.8 percent. The CAC-40 index in France fell 1.8 percent.
Oil prices rose $1.03 to $84.78 a barrel. Gold for February delivery rose $1.60, or 0.1 percent, to $1,365.80 an ounce.The dollar rose 0.8 percent against an index of six other currencies. Bond prices rose as investors shifted money out of riskier assets like stocks and commodities and into defensive investments. The yield on the 10-year Treasury note, which moves opposite its price, fell to 2.86 percent Monday from 2.87 percent Friday.
Investors were also cautious as they awaited the week's economic reports, including the government's monthly employment report due out on Friday. Also due this week are the Conference Board's survey of consumer confidence on Tuesday, and the Institute for Supply Management's assessments of the manufacturing and services industries.
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