Stocks have worst May in decades
UPDATED at 4:12 p.m.:
Stocks staggered out of their worst May in decades, with all three major indices closing down on the day and well down for the month, driven down by the European debt crisis and anxiety in Asia.
The Dow closed down 1.2 percent at 10,136.63 today. The Dow was down 8 percent for May, which CNBC is reporting is the worst May for the Dow since 1940.
The broader S&P 500 closed down 1.2 percent at 1,089.41 today. Down 8.2 percent for the month, it was the worst May for the S&P 500 since 1962.
The tech-heavy Nasdaq closed down nine-tenths of 1 percent 2,257.04 today. The Nasdaq was down 8.3 percent for the month.
The U.S. economy is trying to recover but it is being buffeted by troubles in two hemispheres. In Europe, a spreading debt contagion has enveloped Greece, Spain, Portugal, Italy and Ireland, and threatens to move to France and the U.K. Europe buys 25 percent of U.S. exports, so troubles in Europe drove down stocks here.
In Asia, an internal political revolt in Thailand was quashed just in time for the threat of war on the Korean peninsula to heat up. Korea is a big trading partner of the U.S., and a free-trade agreement knocking down trade barriers between the two nations is on the table in Washington.
The old Wall Street axiom goes "Sell in May and then go away" for the summer. Instead, investors were happy to see May itself go away and hope for a better summer.
Fitch downgrades Spain, stocks plummet
1:24 p.m.: The quiet day on Wall Street is over.
Stocks are down following ratings-agency Fitch's downgrade of Spain's credit rating, following a similar downgrade last month from rival ratings agency S&P.
The Dow, the broader S&P 500 and the tech-heavy Nasdaq are all down at or near 1 percent.
Spain is a bigger problem for Europe than is Greece, because Spain is so much larger: Too big to fail and too big to save at the same time. Nevertheless, the European debt contagion has spread to the Iberian peninsula, with Portugal consumed, as well.
Fitch said Spain's rating is "stable," but it cut the nation's rating from "AAA" to "AA+."
"The downgrade reflects Fitch's assessment that the process of adjustment to a lower level of private sector and external indebtedness will materially reduce the rate of growth of the Spanish economy over the medium-term," said Brian Coulton, the head of EMEA sovereign ratings, in a statement. "Despite government debt and associated interest costs remaining within the AAA range, Fitch anticipates that the economic adjustment process will be more difficult and prolonged than for other economies with AAA rated sovereign governments, which is why the agency has downgraded Spain's rating to AA+."
Translation: Like Greece, Spain is going to have to implement austerity measures to get rid of debt in the public and private sectors and that's going to slow down the economy. Further, Fitch thinks Spain is in such bad shape, it can't handle these measures as well as other first-tier countries, hence the downgrade.
In an interview with CNBC moments ago, Coulton said that he does not expect to issue another downgrade to Spain anytime this year. He said that in the past, Spain has shown that it is tough on debt and expects it to attack the debt problem in a credible fashion. The Spanish government debt-to-GDP ratio is actually smaller than it is here in the U.S. That said, "the economy could turn out worse" in Spain, Coulton said, "and we don't think it's an AAA country."
Miller Tabak equity strategist Peter Boockvar writes: "S&P removed Spain's AAA rating back on Jan 19th, 2009, when they were downgraded to AA+. This was followed up on April 28th, 2010, when S&P moved again and lowered Spain's rating to AA. Thus, Fitch is playing some catch up while Moody's still has Spain at Aaa."
The news has also driven down the value of the euro against the dollar.
Quiet opening on Wall Street
10:11 a.m.: It's a quiet and cautious day so far on Wall Street as stocks are down slightly, but not dramatically, as traders take it easy one day before the long holiday weekend.
In the first 45 minutes of trading, the Dow is down two-tenths of 1 percent.
The broader S&P 500 is down one-tenth of 1 percent.
The tech-heavy Nasdaq is just underwater.
Traders expect stocks to go sideways today and largely hold onto gains from yesterday's big rally.
Europe is trading almost exactly the opposite with a little more than 90 minutes to go in its trading day. Germany, England and France all are up slightly. The euro is up ever so slightly against the dollar.
In other news this morning, April personal income was up slightly and spending was flat.
May 28, 2010; 4:12 PM ET
Categories: Wall Street
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