Dow loses 10% for the quarter as market’s winning streak ends

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Wall Street closed out the second quarter with a loss Wednesday -- a fitting end to a nerve-racking spring that saw many investors lose faith that the global economic recovery can last.

For the day the Dow Jones industrial average slid 96.28 points, or 1%, to 9,774.02, its lowest finish since Nov. 3. The Dow lost 10% for the three months, not counting dividends, for its first quarterly decline since the first period of 2009.

For the first half the Dow was down 6.3%, after rising 18.8% in 2009.

The broader Standard & Poor’s 500 index fell 10.53 points, or 1%, to 1,030.71 on Wednesday, its lowest since Oct. 2. Some traders said the S&P’s slide below the 1,040 mark, in a late sell-off, was a blow to bullish psychology because the market has rallied several times from that level this year.

From a chart-watcher’s viewpoint, “below 1,040 we’re almost in no-man’s land,” said Ryan Larson, a trader at RBC Global Asset Management in Chicago.

The S&P tumbled 11.9% in the quarter and 7.6% in the first half, after rallying 23.4% in 2009.
Sellers on Wednesday may have been getting out of the way before the government reports on June employment trends on Friday. A disappointing rise in private-sector jobs could cement fears that the U.S. recovery is on the rocks.

Some investors continued to take cover in the classic haven of Treasury bonds: The 10-year T-note yield slipped to 2.95%, down from 2.96% on Tuesday and a new 14-month low. The yield has plunged from 3.83% on March 31.

The red ink for equity markets was pretty much a worldwide event in the quarter and the half, of course. Many European markets bore the brunt of the selling in the quarter -- which made sense, given that the continent’s government-debt crisis was one of the biggest depressants on investors’ mood in the three months.

The Spanish market dived 14.8% for the quarter, Italy’s market was down 15.5%, and Britain lost 13.4%. For U.S. investors, euro-zone markets’ losses were deepened by the euro’s 9.4% drop against the dollar in the quarter.

In a reminder that Europe’s debt woes will be a continuing story, Moody’s Investors Service on Wednesday warned that it might cut Spain’s Aaa credit rating. But Moody’s is behind the curve on this one: Standard & Poor’s and Fitch Ratings lowered their ratings on Spain earlier this year.

(Meanwhile, there was some good news out of Europe’s financial system, as banks borrowed less via a new European Central Bank lending program than had been expected.)

On Wall Street, U.S. small-company stocks overall lost less ground than blue chips in the second quarter, suggesting that some investors were focusing on companies whose fortunes were tied more to the domestic economy than the global outlook. Whether that’s a smart strategy remains to be seen.

The Russell 2,000 small-stock index fell 10.2% for the quarter and was down 2.5% in the half.
In Asia, China’s stock markets suffered the biggest losses in the quarter after the central government took more steps to cool real estate speculation. The Shanghai composite index slid nearly 23% for the period.

But many smaller Asian markets held up relatively well in the quarter, reflecting the strength of their economies. The Indian market added 1% in the three months, the South Korean market edged up 0.3%, and the Indonesian market rallied 4.9%.

As equity-market optimists like to say, “There’s always a bull market somewhere.”

-- Tom Petruno