March 2, 2021

Shares Fall as Anxiety Over Europe Holds Sway

Financial stocks led an overall market decline on Wall Street on Tuesday after a meeting between the leaders of Germany and France to try to address the widening crisis in the euro zone.

The meeting brought to the forefront one of the main concerns of investors, who were also reacting to new euro zone data that raised concerns about unsteady global economic growth.

As attention shifted to the meeting in Paris between Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France, the euro zone’s two largest economies, investors waited to hear how the leaders would address the threat posed by low growth and unstable public finances in some euro member nations. Fears have recently also surfaced over France.

Both leaders flatly rejected an idea that has recently gained currency among more economists: the creation of new government bonds backed by all the nations of the euro zone.

Mr. Sarkozy said he would not rule out euro bonds at some point in the future, but said greater coordination of economic policy among euro zone members was a necessary first step.

At the close, the American markets had shaved off some of the gains built up over the last three trading sessions that had propelled them to recover from losses in the wake of the Standard Poor’s Aug. 5 downgrade of America’s long-term credit rating. The S. P. 500-stock index was down nearly 1 percent or 11.73 points, at 1,192.76. The Dow, which was up 1.1 percent on Monday, declined by 0.67 percent, or 76.97 points, to 11,405.93, while the Nasdaq was lower by 1.24 percent or 31.75 points, at 2,523.45.

“It’s Europe now; the focus has shifted,” said Brian Gendreau, market strategist for Cetera Financial Group. “I think it is not so much there is any bad news, but it is a continuation of the policy instability.”

“I don’t think it is anything specific,” he added. “Just a lack of what is viewed as progress to medium-term solutions.”

Peter Cardillo, chief market economist for Rockwell Global Capital, said that he believed the declines in the stock market had been set off by the remarks on euro bonds especially.

“The deceleration that we saw is disappointment, Sarkozy shooting down the idea of the euro bonds, and that I think is disappointing the market at this time,” Mr. Cardillo said.

But he added: “We are not seeing real panic in the market, and the fact that we opened up lower may have been more due to a technical reaction after three strong days of gains. Volatility is going to accompany this market for some time to come, but I think the market is going to discount the worst-case scenarios.”

Analysts said concerns over the economy in the euro zone and in the United States had weighed on trading, a negative tone only worsened by the downgrade.

Gross domestic product in the 17-nation euro area rose 0.2 percent in the second quarter compared with the previous quarter, according to Eurostat, the union’s statistics agency. Euro area growth was down from 0.8 percent in the first quarter.

Adrian Cronje, chief investment officer of Balentine, said that the markets needed to hear a forceful message that the troubles in the euro zone went beyond the sovereign debt crisis.

“What markets are sensing and are worrying about is that the resolution to the European debt crisis is going to be a timid, untimely and inconsistent response,” Mr. Cronje said. “Taxing financial transactions and playing with time is not facing up to the real issue,” he added.

Financials and energy stocks were both down by more than 1 percent. Bank of America, Citigroup and Morgan Stanley were each down by more than 4 percent. Among individual stocks, Wal-Mart was up $1.94 at $51.92 after reporting a 5.7 percent increase in quarterly profit. Home Depot, which reported an increase of 14 percent in quarterly profit and raised its outlook for full-year income, was up $1.59, at $33.05.

The price of the 10-year Treasury note rose 24/32 to 99 4/32, and the yield fell to 2.23 percent, from 2.31 percent late Monday.

Nicola Clark and Jack Ewing contributed reporting.

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