US stocks under pressure after European elections

PALLAVI GOGOI AP Business Writer Published:

NEW YORK (AP) -- U.S. stocks were under pressure after angry voters in Greece and France rejected painful budget cuts demanded by international lenders.

Investors are uncertain over how the results will affect Europe's plans to rein in spending and keep the euro zone's debt crisis from worsening.

The Dow Jones industrial average was down 32 points to 13,006 shortly after noon Monday. The Standard & Poor's 500 fell less than a point to 1,368. The Nasdaq composite index fell 1 point to at 2,955.

In Europe, most markets recovered from early losses and turned higher. Greece was the exception: the main index in Athens plunged 6.6 percent after Greek voters expressed their anger over crippling income cuts by punishing mainstream politicians. No party has enough votes to govern alone, leaving the parliament split. French voters ousted President Nicolas Sarkozy and elected Socialist Francois Hollande, who pledged "to finish with austerity."

Investors are waiting to see what the new leaders will do, which is why there is a muted reaction from stock markets, according Kim Caughey-Forrest, equity research analyst at investment firm Fox Pitt Capital Group.

"The new leaders are faced with exactly the same problems today that prior leaders had on Friday," said Caughey-Forrest. "It is unclear they can make different decisions from the past."

Caughey-Forrest said that no political leader likes to make unpopular budget cuts, but their hands were tied. European leaders have no option but to support the debt and abide by the rules of the European Union.

Investors are waiting to hear what course of action the leaders pursue. The verdict from European voters will likely force leaders there to go back to the table in coming up with a more acceptable solution to the debt crisis that has plagued many nations. The deep cuts in government spending only worsened the situation in many countries, leading several countries into deeper economic distress and increasing already high unemployment.

Many believe the austerity programs are necessary to keep bond investors from panicking about the possibility that more European nations will default or require bailouts.

However, a growing number of politicians, like France's Hollande, say the cuts have been too much, too fast. They say the region's economy can't return to growth unless governments stop tightening the fiscal noose and start spending again to create demand. Some economists also now believe that the cuts have to be accompanied by some government economic stimulus to promote growth.

No matter what the outcome may be, the path forward seems fraught with uncertainty.

That was reflected in how the markets have reacted. Greek shares plunged 8.2 percent in early trading, then recouped some of the ground it lost. France's CAC-40 was up 1.7 percent and Spain's Ibex-35 was up 2.7 percent. Germany's DAX was flat.

Bond investors were also uncertain. The benchmark yield on the 10-year Treasury note dropped to 1.83 percent overnight, but by mid-morning Eastern time it was back up to 1.88 percent, the same level it was at late Friday.

In the U.S., investors are also awaiting for data that will reveal how American consumers are faring, a key factor for any full economic recovery at home.

The Federal Reserve will release its latest consumer borrowing report Monday afternoon. Economists predict that consumer borrowing rose by $10 billion in March, according to a survey by FactSet, which would mark the seventh consecutive month of gains.

In other trading:

-- Cognizant Technology Solutions plunged 17 percent after the information technology services provider lowered its forecast for the full year on low demand, echoing the bleak outlook from other rivals due to the uncertain global economy.

-- Meat products maker Tyson Foods rose over 3 percent after reporting an increase in its second-quarter profit on higher beef and chicken prices.

-- Frontier Communications fell 7 percent after the regional telecommunications provider said it was losing residential and business customers. The company had bought rural landlines from Verizon Communications two years ago, which led to several quarters of growth last year.

Want to leave your comments?

Sign in or Register to comment.