Dow gives back half of last week’s rally on new Eurozone doubts

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Stocks racked up their worst loss in two weeks, dashing hopes that the market was busting out of the trading range where it has been stuck for two months.

Weighed down in part by new worries about Europe, the Dow Jones industrial average slid 247.49 points, or 2.1%, to close at 11,397.00 on Monday.

That took back about half of the Dow’s 541-point, 4.9% rally last week.

The broader market also slumped, after German Finance Minister Wolfgang Schaeuble warned investors against expecting a “definitive solution” to the continent’s debt crisis at the upcoming weekend summit of European Union leaders.

For traders who’ve ridden stocks’ sharp rebound from one-year lows on Oct. 3, that was enough to trigger selling. Through Friday the Dow had rallied almost 1,000 points, or 9.3%, since Oct. 3.

It didn’t help that Wells Fargo and Citigroup on Monday reported disappointing third-quarter revenue, pushing their stocks lower. And after the closing bell IBM Corp. also missed revenue estimates. Its shares fell to $179.95 after-hours, after losing $3.94 to $186.59 in regular trading.

Overnight, most European markets fell between 1.2% and 2.3%.

Global investors are anxious to see Europe ring-fence the debt crisis that has engulfed Greece and now threatens to spread to larger states. Hopes rose last week after Slovakia became the final country to approve expansion of the Eurozone rescue fund for struggling member nations.

Still to be hammered out, however, are details including how to boost capital cushions at Europe’s major banks, a move seen as crucial ahead of whatever losses lenders are forced to absorb on their holdings of Greek government bonds. But Schaeuble’s warning, echoing similar comments from Germany Chancellor Angela Merkel’s spokesman, suggested that there would still be loose ends to tie up after this weekend’s meeting of European leaders.

“The market just wants this indecision to be over with,” said Ryan Detrick, senior analyst at Schaeffer’s Investment Research in Cincinnati.

Wall Street bulls were disappointed that Monday’s slide sent key indexes back into their trading range of the last two months. A rally on Friday had lifted the Dow, the Standard & Poor’s 500 index and the Nasdaq composite out of their recent ranges, raising hopes that the market was primed to run higher.

The S&P 500 had risen 20.92 points, or 1.7%, to 1,224.58 on Friday, topping the previous two-month closing high of 1,218.89 on Aug. 31. But on Monday the S&P slumped 23.72 points, or 1.9%, to end at 1,200.86.

The S&P has mostly bounced between 1,100 and 1,220, a range of 11%, since Aug. 8.

Many pros believe much of the action in the market since early-August has been little more than short-term players trading back and forth with each other. Relatively thin trading volume on Friday and Monday suggested that traders still are in control, and that many institutional investors remain sidelined.

“It just seems like the institutions are out of this market,” Detrick said.

Unfortunately, that’s a recipe for more volatility -- which just pushes more genuine investors away from stocks.

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-- Tom Petruno

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