Euro jitters slam U.S. stocks

July 10, 2014

New York (July 10)  U.S. stocks are down sharply Thursday as jitters about a Portuguese bank and ugly economic data raise more doubts about whether Europe is recovering.

"This has been a horrible day in Europe by recent standards, with peripheral credit concerns once again rearing their head just as core Europe struggles with a decelerating economy," analysts at Bespoke Investment Group wrote in a note to clients.

Here's what you need to know about today's market sell-off:

1. By the numbers: Investors drove the Dow Jones Industrial Average as much as 180 points lower in morning trading. The index was recently off about 130 points, while the S&P 500 shed 0.7%, while the Nasdaq lost 9%.

Before bouncing off its lows, the S&P 500 had been on track for its first 1% daily decline since April 10 when it plummeted 2.1%.

Now the question is: Is this European-fueled slide a blip or indicative of a longer-lasting slump?

"A 5% or 10% correction is a healthy component of any bull market, and that should be considered the worst case scenario," Bespoke analysts said. "It will take a lot more than a soft patch in global economic data and a bad turn for European equities to break the back of this market in the long run."

2. Blame Europe! The ugly day began in Europe, where a little known Portuguese bank brought back concerns about the health of the continent's financial system.

Trading of Espirito Santo Financial Group -- the leading shareholder in Portugal's biggest bank -- was suspended. Shares of Banco Espirito Santo (BKESF) plummeted 17% before they were also halted.

The euro banking woes trickled down to U.S. financial firms, with shares of Bank of America (BAC), Morgan Stanley (MS) and JPMorgan Chase (JPM) all off by at least 1%.

But that's not all that caused European markets to tumble. New reports show industrial production fell sharply in France and Italy, signaling the European economic recovery could be in trouble.

The concerns about Europe mark a sharp reversal from recent months when the continent had been seen as a mild positive to global growth following its sovereign debt crisis.

3. Earnings season is here: After Alcoa (AA) kicked off earnings season earlier this week with a home run, a number of retailers reported mixed results on Thursday.

Family Dollar (FDO) dipped 2% after the struggling retailer reported a drop in same-store sales and profits. The discounter also dimmed its forecast slightly. But Family Dollar has a plan to lure in shoppers: booze. The company said it will follow Wal-Mart  (WMT)by selling beer and wine in the coming years.

Shares of Tractor Supply Co. (TSCO) slumped almost 6% before the open after the company posted disappointing earnings on Wednesday.

4. Stock movers: Lumber Liquidator, T. Rowe, Zumiez: Investors took a big axe to shares of Lumber Liquidators (LL). The flooring retailer plummeted 21% after disclosing a traffic tumble and projecting profits that would badly miss expectations.

The somber news sparked selling in home improvement stocks like Ethan Allen Interiors (ETH), Lowe's (LOW) and Home Depot (HD).

T. Rowe Price  (TROW)was among the worst financial performers after the asset manager was reportedly downgraded by Evercore. The worry is that T. Rowe could be hurt by in the coming months by investors yanking cash from U.S. equity funds.

While Family Dollar is stuck in the red, shares of Zumiez (ZUMZ) popped 8% after the company boosted its profit outlook for the rest of the year thanks to soaring June sales.

5. Return of U.S. jobs: Americans received another glimmer of hope about the jobs market on Thursday. The Labor Department said initial claims for jobless benefits fell by 11,000 last week to 304,000. That was slightly better than many on Wall Street expected.

The weekly claims report comes on the heels of the June jobs report, which revealed the U.S. added an impressive 288,000 jobs.


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