Stocks decline on worries over Cyprus bailout
NEW YORK – Stocks edged lower on Wall Street as investors fretted about the latest chapter in Europe’s debt saga.
The Dow Jones industrial average was down 24 points, or 0.2 percent, at 14,428 as of 2:47 p.m. EDT. The Standard & Poor’s 500 index dropped seven points, or 0.5 percent, to 1,545. The Nasdaq composite fell 19 points, or 0.5 percent, to 3,218 points.
Europe’s unresolved debt crisis is still weighing on stocks.
Markets slumped worldwide Monday after Cyprus and its European partners announced a proposal to seize money from depositors’ accounts to help pay for a bailout of the country’s banks. Investors sold stocks on concern that the plan would cause a run on banks in the countries using the euro.
Cypriot lawmakers Tuesday rejected a draft bill that would have seized part of people’s bank deposits in order to qualify for an international bailout. The bill, which had been amended to shield small deposit holders from the deposit tax, was rejected with 36 votes against, 19 abstentions and zero votes in favor.
European officials have said that without a bailout, the country’s main banks will collapse and the country could end up having to leave Europe’s joint currency.
“The situation in Cyprus is keeping everyone glued to their TVs,” Joseph Tanious, global market strategist at J.P. Morgan Funds, said before the vote.
Tanious says investors shouldn’t immediately overreact to the news coming out of Europe, but instead take a step back and remember that Mario Draghi, the European Central Bank President, pledged last year to do all he could to preserve the euro.
“Do not underestimate the power of the ECB,” says Tanious.
U.S. stocks started the day higher after the government reported that U.S. builders started construction on more houses and apartments in February, boosting optimism that the housing market is recovering. The Dow rose as much as 62 points before turning lower shortly before noon.
Builders broke ground on homes last month at the second-fastest pace since June 2008. Building permits, an indicator of future construction plans, also jumped 4.6 percent. The report was stronger than analysts expected, and initially sent the stocks of homebuilders higher.
U.S. markets have been on a roll. The Dow is up 10.1 percent this year and broke through its previous all-time high on March 5, driven by strength in the housing market and a pickup in hiring. Strong company earnings and continuing stimulus from the Federal Reserve is also helping boost demand for stocks.
The S&P 500 is up 8.2 percent in 2013 and is 1.4 percent away from its record close of 1,565.15 reached October 2007.
The Federal Reserve opens its second policy meeting of the year Tuesday. On Wednesday, it will issue a policy statement and update its economic forecasts. Economists and investors don’t expect the Fed to let up in its drive to keep stimulating the economy by keeping interest rates at historic lows.
“The Fed has clearly been a big push in this market, no question,” said Maury Fertig, chief investment officer at Relative Value Partners. “What the Fed has done has really helped the market recover … they’re not going to pull away prematurely.”
Investors are increasingly putting more money to stocks, according to a Bank of America Merrill Lynch survey, published Tuesday. The survey of fund managers showed that 57 percent of investors favored allocating money to stocks, the highest percentage in more than two years.
The yield on the 10-year Treasury note, which moves inversely to its price, fell to 1.91 percent from 1.96 percent.
Among other stocks making big moves:
• Lululemon fell $2.19 to $63.73 after the company yanked its popular black yoga pants from store shelves after it found that the sheer material used was revealing too much of its loyal customers.
• Walgreen rose $2.14 to $44.59 after the drugstore chain said its fiscal second-quarter earnings climbed 11 percent, helped by contributions from European health and beauty retailer Alliance Boots, stronger sales and its new contract with Express Scripts Holding Co.
The company also said Tuesday it is expanding its supply agreement with AmerisourceBergen through a deal that gives it and European health and beauty retailer Alliance Boots a minority stake in the pharmaceutical wholesaler. Amerisource rose $2.26 to $50.56.
• Electronic Arts fell $1.65 to $17.05 after the video game maker said its adjusted revenue fell 28 percent to $1.18 billion for the last three months of 2012. The figure was below Wall Street’s expectations of $1.29 billion. The company also said that its CEO, John Riccitiello, will step down on March 30.