The close: Stocks sink for a second day
Stocks continued their post-election volatility on Thursday, surrendering early gains and sending major North American indexes into another steep decline.
The Dow Jones industrial average closed at 12,811.32, down 121.41 points or 0.9 per cent – or about 170 points below its earlier high. The broader S&P 500 closed at 1377.51, down 17.02 points or 1.2 per cent. In Canada, the S&P/TSX composite index closed at 12,191.05, down 39.54 points or 0.3 per cent.
The reversal followed a rough day for stocks after Barack Obama was re-elected as U.S. President on Tuesday night. On Wednesday, the S&P 500 fell more than 30 points, marking its biggest one-day decline in five months.
Most of the backdrop to Thursday's action wasn't bad at all. The European Central Bank and the Bank of England maintained monetary policies, as expected.
And in the United States, initial jobless claims fell to 355,000, down 8,000 from the previous week.
However, investors could be re-awakening to the risks posed by the U.S. fiscal cliff and the sovereign-debt crisis in Europe. Any failure by U.S. politicians to come to an agreement could force tax increases and enormous spending cuts that would wreak havoc on the country's economic growth – and Tuesday's election results suggested that political gridlock will continue.
In Europe, Spain conducted a successful bond auction and Greek politicians agreed to more spending cuts as a condition for receiving the next round of financial aid for the euro zone. However, Bloomberg News reported that a euro zone official has said that financial ministers might hold off on sending aid to Greece until the end of November.
European bond yields reflected rising anxiety. The yield on Greece's 10-year government bond rose to 17.5 per cent, up 55 basis points. Spain's 10-year bond rose to 5.8 per cent, up 16 basis points. And Italy's 10-year bond rose to 5 per cent, up 11 basis points. (There are 100 basis points in a percentage point.)
However, investors fled to the relatively safety of U.S. government bonds. The yield on the 10-year U.S. Treasury bond fell below 1.62 per cent. The rush to safety also drove the U.S. dollar higher: The U.S. dollar index hit its highest level in two months.
Meanwhile, some corporate disappointments hung over the market. McDonald's Corp. reported that sales at stores open for at least one year fell by 1.8 per cent in October. The shares fell 2 per cent.
Apple Inc. continued its slide, a day after flirting with a bear market decline. The shares fell 3.6 per cent on Thursday bringing its decline from its record high in September to nearly 24 per cent.
Still, some of the more bloodied stocks in Wednesday's brutal selloff did respond with modest gains. Bank of America Corp., which fell more than 7 per cent on Wednesday, rose 1.7 per cent.
Among commodities, gold rose to $1,726 (U.S.) an ounce, up $20. Crude oil rose to $85.09 a barrel, up 65 cents.
Among Canadian commodity producers, Barrick Gold Corp. rose 1.1 per cent and Suncor Energy Inc. fell 1.1 per cent.
In the post market, Groupon fell 13 per cent after its earnings missed expectations. And Walt Disney Co. fell 2 per cent after reporting revenues that fell short of analysts' forecasts. Kayak Software Corp. was up nearly 30 per cent after Priceline announced a deal to buy the travel site for $40 (U.S.) per share.