Stocks Fall as European Financial Crisis Deepens

By DAVID K. RANDALL, AP Business Writer

NEW YORK -- Since when does the stock market take its cues from the market for silver, oil and pork bellies? When it's really the dollar that's driving the action.

The stock market rally, which began in August, relied on stronger earnings, rising commodity prices and a weak dollar, said Andrew Wilkinson, senior market analyst at Interactive Brokers. But prices for commodities have dropped by 10% this month, and swung wildly over the past week. Oil, for example, was nearly $114 a barrel at the end of April. On Tuesday oil settled at $104, fell, rose and fell again, to close at $99.65 on Friday.

Falling commodity prices are widely blamed for driving down stocks. The Standard & Poor's 500 index has lost 1.9% so far in May. Other indexes are down more than 1.5% for the month.

It's not simply a case of investors selling because they believe declining oil prices are a sign that the economy is losing strength. Rather, since commodities are mainly traded in dollars, it's the dollar's recent rise that is largely responsible for pushing down commodity prices. If the dollar gains strength against other currencies, it takes fewer dollars to buy the same barrel of oil.

"Suddenly, the dollar is no longer the whipping boy," Wilkinson said. "And if the dollar is no longer the whipping boy, you can no longer count on a commodity-driven rebound to push up the stock market."

Worries over Europe pushed the dollar up nearly 1% on Friday and erased the week's gains in the stock market.

The Dow Jones industrial average lost 100.17 points, or 0.8%, to close at 12,595.75. The S&P 500 fell 10.88, or 0.8%, to 1,337.77. The Nasdaq lost 34.57, or 1.2%, to 2,828.47. The slide turned the Dow and S&P lower for the week.

Financial stocks fared the worst in the past week, followed by material and energy companies. Both Bank of America Corp. and JPMorgan Chase & Co. dropped 2% on Friday.

Companies in the energy sector fell the most in May. Exxon Mobil Corp. lost 8% so far this month.

The Dow fell 0.3% over the week and 1.7% for the month. The Nasdaq was flat for the week and is down 1.6% for the month.

The Russell 2000, an index of small companies, ended the week up nearly 0.3%, but is down the most so far this month, declining 3.42%.

In addition to the dollar's rising value, several other forces have led to the recent rout in commodity prices. A requirement that traders back their bets on silver with more cash spurred a sell-off in metals, which some traders say cascaded into other markets. Reports over the past week showing weaker demand and rising supplies for both crude oil and gas have pushed down energy prices. U.S. oil inventories have climbed to their highest level since May 2009.

Meanwhile, betting on a weak dollar has been a popular move. For much of the last year, traders bought commodities and sold dollars.

The dollar's sudden strength has caused them to reverse those bets. "That's been the big trade," said Dan Greenhaus, chief economic strategist at Miller Tabak. "And it's getting undone."

The downside: eventually a stronger dollar makes U.S. products more expensive to foreign buyers. Exports decline. Companies that sell everything from sneakers to aircraft feel their profits pinched.

Stocks in countries that use the euro fell after the European Union warned that the debt loads of Greece, Ireland and Portugal will be larger than originally thought. Officials said that Greece needs to cut spending further, which led to concerns that the assistance the country has already received won't be enough. The Euro Stoxx 50, an index of large companies in countries that use the euro, fell 0.8%.

Fears of a deepening financial crisis overshadowed reports that found that consumers are feeling more confident in the U.S. economy and that inflation remains in check. Consumer prices rose 0.4% in April, the Labor Department said. That was in line with economist's expectations.

Most of the increases came in volatile food and energy prices. Stripping those out, prices rose 0.2% and stayed below the rate of inflation that the Federal Reserve considers normal.

"Inflation doesn't look like the risk that everyone feared," said Doug Cote, the chief market strategist at ING Investment Management.

The prices that consumers pay have risen 3.2% over the last 12 months, the biggest 12-month gain since October 2008. Companies like Kimberly-Clark Corp. and Colgate-Palmolive Co. that sell households products have raised prices because of higher commodity costs that have cut into their profit margins. Costs for raw materials like oil, coffee, and cattle have risen more than 10% this year.

More than two stocks fell for every one that rose on the New York Stock Exchange. Trading volume was 3.5 billion shares.

Increase your money and finance knowledge from home

Professional Vs Do it Yourself Investing

Should you get advice or DYI?

View Course »

Introduction to ETFs

The basics of Exchange Traded Funds and why ETFs are hot.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Major Fraud Alert

The entire Federal Banking System under FirstGov has been "Consumed" and "Levied" by way of a Maryland State Circuit/District Court Ruled “Appropriation and Garnishment” of all Future Earnings prior to and after 2004 against Bank Of America by way of the F.D.I.C. Regulations Prohibiting failing Banks from Merging with other failing Banks between the Dates of 08/04/08 and 10/09/09.

Bank of America violated the 21st Century Act: Final Amendments to Regulation CC Section:

seeking reimbursement of Credit, Loan, and Finance Balances as a "Bank Entity" and not a "Nonbank Consumer" as specified on Pages 85 and 86.

The person they sued through a LLC. Debt Collection Company and Law Firm was the "World Fortune Owner" who "Counterclaimed" and won.

Now all Contracts of any Corporations (Including Employment) under the "Controlling Interest" of any Investment Bank Worldwide are "Null and Void", and are also under the stipulated Rules and Regulations of an "Closely-held S Corporation rendering all Employed under Legal Actions against “Domination”, and also means that "No Corporation can hold Shares" officially making every Stock Exchange on the Planet a "Ponzi Scheme" by default.

Businesses owned by the States (Public Corporations) are being sold Stock Shares by Corporations also under the Federal Banking System in this Worldwide "Ponzi Scheme". The World Fortune Company Merrick Inc. Sweden is dissolving Millions and Billions of Dollars from "All Levels of Government"in the U.S. of Financing based upon Years of "negligent inaction" involving this case.

The Federal Government has already been forced to discontinue supplying the Financing States use to pay their debts, Persons in Government Offices may want to begin to take their jobs more seriously, these are different times from 10 Years ago and you will not be accepted civil servants here just because you say you are here to do the right thing.

May 28 2011 at 11:47 PM Report abuse rate up rate down Reply

Ben Shalom Bernanke, a student of the Great Depression, gave a speech in 2002 at Milton Friedman’s 90th birthday in honor of Friedman’s work on the monetary causes of the Great Depression. Friedman had claimed to trace the “cause” of the Great Depression to the Fed’s contraction of the money supply. Bernanke said in his address:

...."Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna [Schwartz, co-author of A Monetary History of the US.]: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again."

Ben lied, again. They, The Federal Reserve, are doing.. IT.. again, right now.

May 18 2011 at 3:42 PM Report abuse rate up rate down Reply
1 reply to zekandzora's comment
Samir semaan

Now that gas prices are getting down consumers will have a different outlook regarding the economy, what happen recently that people stop driving and start commuting this no demand and more supply help drive prices down on the homefront and good economic data despite high fuel prices. The fundamental are very good for the american economy and very soon unemployment rate will come down gradually why because capitalism is rising the layoffs in the past two years put the economy on a solid foundation even to the bottom so there is only climbing what we see is correction from the market and the future will be grate. Government can put all the pieces of the puzzle on the board and it is up to the private sector to pick it up. Another thing government should enforce the law on the book and stop abuses and reduce the deficits and should be commited to go ahead with this because savings will be into thrillions.

May 17 2011 at 11:58 PM Report abuse rate up rate down Reply
Not Again

I just got a $829.99 iPad2 for $98.37 and my girlfriend snagged an awesome $1299 MacBook Air for only $137.93, its being delivered tomorrow. I would be a fool to keep paying high retail prices at places like Walmart or BestBuy, when I even sold a 37" HDTV to my boss for $600 that I only paid $78.24 for. I use two sites, both are good,

May 17 2011 at 10:03 AM Report abuse rate up rate down Reply

An alternativ­e recommenda­tion to replace The Federal Reserve is to go back to The Constituti­on of The United States where it is clearly stated that the Congress has the sole responsibi­lity to print and coin money and to determine the value of the money. The Treasury Dept. can easily handle the printing process.

This would forever eliminate the fraud of paying interest and incurring debt to a privately owned, for profit money printing monopoly, like The Federal Reserve. Declare the "National debt" as null and void due to the massive fraud and unconstitu­tionality of the Federal Reserve Act..

Abolish The Federal Reserve and it's evil servant, the IRS. This nation got along just fine with out an income tax or the IRS for nearly 130 years. That will free up about $750,000,0­00,000 to $1 trillion per year at current expenditur­es. Issue money on a formula that incorporat­es population and gross domestic product.

Avoid like the plague getting into gold or silver backed currency because the same oligarchic­al families and businesses who control our economy now through the Federal Reserve have control of the world's gold and silver markets.

Return manufactur­ing to this country by what ever means are required.

Prosecute those members of government who are found to have committed treason and/or violated their oaths of office. Investigat­e and prosecute those individual­s in and behind The Federal Reserve fraud who have defrauded the American citizens for 98 years

May 14 2011 at 1:07 PM Report abuse rate up rate down Reply

This has nothing to do with pure capitalism, however it has alot to do with Washington's over exagerated ego's.
Let's face it, the DC politicians made a huge mistake -- they bailed out the banksters with Chinese money.
The European financial crisis was preceiped by the Bankster's selling their cdo's globally to small countries.
The German's did not buy any toxic derivatives and their economy thrives, in fact the German mark is going to be the new soverign world currency brought to you by our friends in oil OPEC.

May 14 2011 at 11:32 AM Report abuse rate up rate down Reply
1 reply to jkennedy806's comment

The dollar's raising value, then why does OPEC want to replace it with the soverign GERMAN Mark?? And Cisco is laying off??? JOb Demand?? nope, i don't think so It will be another summer of recovery, just like last year, except worse, cause the gas will stay high until that 25 cents reduction hits in the fall.

May 14 2011 at 11:21 AM Report abuse +1 rate up rate down Reply
1 reply to jkennedy806's comment
Samir semaan

What people do not know about economy is supply and demand cause and effect if there is demand there is supply the universe hinge on this equation why not the economy while gas prices were rising and prices of commodities too americans start saving by using public transportatiopn when it is available and during that time last months the economy raise 240000 jobs last months the dollar is rising from the ashes this is role of capitalism supply and demand and we will see more demands on jobs here and the market here than abroad for one reason and ths strength of the dollar. This rise must give lawmakers in congress a pause to think what is the best way to keep this economy moving forward and build more jobs so more money can come to treasury. While the deficit should be addressed in a way to stop abuses on the system and reduce the waste in the american government payroll and enforce the law by bringing back the anticorruption office in the Federal bureau of investigation when there is no enforcement there will be abuses the same for immigration, gangsters,crimes, no one said the system is perfect to get to that point . But it is a start and that what president Bill Clinton did in the 90'th and succeeded all it takes a small beginning.

May 14 2011 at 10:41 AM Report abuse rate up rate down Reply

The dollar rose on the Euros debt weakness. The Euro rises as the US goes farther into debt and budget deficits grow rampant. Seems like it is a battle to see who is can be the worse as we are lead off. What ever happened about being the best? It is certainly a Bizarro World today! One disaster after another. Even Orwell’s 1984 could not envisioned the mismatch of the Big Brother ideas. Our government and it's controlled media industrial complex just puts out so many contradiction on everyone and everything that no one can tell what is right or wrong, good or bad, or wether to love or hate.

1984 by George Orwell:
"The Ministry of Peace concerns itself with War, the Ministry of Truth with Lies, The Ministry of Love with Torture and the Ministry of Plenty with Starvation. It all makes sense now."

"War is Peace"

"Freedom is Slavery"

"Ignorance is Strength"

Only today we can add to those grisly concepts of our future world.

Debts is Financial Reward, and the Ministry of Finance concerns itself with Selling Worthless Debt

May 14 2011 at 12:00 AM Report abuse rate up rate down Reply

Can't for the likes of me, understand why hoe silver went down?

May 13 2011 at 10:49 PM Report abuse +1 rate up rate down Reply