By Hao Li: Subscribe to Hao's RSS feed
October 4, 2011 11:35 AM EDT
Tuesday’s early morning drop has taken the S&P 500 Index down over 20 percent from its May 2 high. Although there is no official definition of a bear market, one commonly accepted metric is falling 20 percent over an extended period.
At one point in the session, the S&P 500 dropped to 1,074, which is 22 percent below the May 2 intra-day high.
For the session so far, the S&P 500 has dropped 0.63 percent, or 6.97 points, to trade at 1,092.26 at 11:28 a.m. ET. The Dow Jones Industrial Average has declined 1.39 percent, or 148.22 points, or trade at 10,507.08. The NASDAQ Composite is up 0.55 percent.
U.S. stocks rebounded from session lows after Federal Reserve Chairman Ben Bernanke told Congress that the Fed is “prepared to take further action as appropriate to promote a stronger economic recovery.”
Below are five major factors responsible for the declined of U.S. and global stocks.
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European Debt Crisis
Greek bonds are threatening to default. Whether the default is planned (the preferred solution) or disorderly, it will be painful.
Many vulnerable and under-capitalized European banks will be rocked by the losses to their Greek debt holdings.
Moreover, other indebted Eurozone members, like Italy, may become the next victim of the ongoing sovereign debt crisis should Greece fall.
At the heart of the problem is Eurozone officials’ inability to act quickly and decisively with either another round of massive bailout cash or Eurozone integration in the form of euro-bonds.
Fed Disappointment
The Fed fell short of market expectations.
Investors hoped the Fed, in its September meeting, would either expand the size of its balance sheet (i.e. quantitative easing) or at least hint at it.
However, the Fed kept the size of its balance sheet constant and only lengthened its maturity (i.e. swap shorter-term assets for longer-term assets).
Weekly Roundup: Asian Markets Fall On Weak China Data And Euro Zone Debt Concerns
Pre-Market Movers (Frontline, EMC Corporation, Deutsche Bank, SAP, Carnival Corporation, Wells Fargo & Company and BHP Billiton Limited)
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Weekly Roundup: Asian Markets Fall On Weak China Data And Euro Zone Debt Concerns
