Greek leaders said 'no' to the Eurogroup's cash-for-reform proposal and investors around the world in turn said 'no' to buying stocks on Monday. Just about every major market closed down at least 2.0%.
The hardest-hit markets were the European bourses, which included Germany's DAX Index (-3.6%) and Spain's IBEX (-4.6%). Japan's Nikkei dropped 2.9% while China's Shanghai Composite fell 3.3% despite the People's Bank of China cutting its benchmark lending and deposit rates by 25 basis points each to 4.85% and 2.00%, respectively.
In comparison, the U.S. stock market fared reasonably well, yet that doesn't mean it did well. Hit with broad-based selling pressure, the S&P 500 declined 2.1% as buyers basically wanted no part of today's action outside a few areas of specific interest.
One area was the utilities sector (-0.6%), which traded with a modest gain for most of the day before ultimately feeling the gravitational pull of the weak market. Another area was the Treasury market, which attracted safe-haven flows. The 10-yr note surged more than a point and saw its yield drop 15 basis points to 2.33%.
The CBOE Volatility Index (VIX 19.13, +5.11, +36.5%), meanwhile, made a huge move as investors sought hedges to protect against downside risk. The scope of the move underscored the concerns surrounding the situation in Greece, which imposed capital controls and closed its banks, and how underappreciated the risk of getting to the point of referendum really was.
In light of the latest developments, Standard & Poor's downgraded Greece to CCC- from CCC and said it now thought there was a 50% probability that Greece will leave the eurozone. Additionally, there was little confidence in the thought that Greece will make its EUR 1.6 billion debt payment to the IMF on Tuesday.
Notwithstanding the latter developments, the euro reversed early losses and strung together a rally that saw it gain 0.8% against the dollar on Monday. That move, and a strong gain by the yen, pressured the U.S. Dollar Index, which fell 0.6% to 94.87.
The weaker dollar, however, did not help oil prices, which declined 2.3% to $58.32 per barrel as demand concerns tied to the macro situation took root.
In the stock market, the financial sector (-2.4%) got hit the hardest as Greek contagion concerns and a flatter yield curve got the better of the sector, which had been outperforming in recent weeks on curve steepening and the thinking Greece and its creditors would strike an eleventh-hour solution. Misery of course loves company and the financial sector had plenty of it. Tagging along for the joyless ride were the materials (-2.4%), health care (-2.3%), consumer discretionary (-2.3%), and information technology (-2.2%) sectors, but every sector was down for the day.
Every stock in the Dow Jones Industrial Average lost ground, too, but none more so than Goldman Sachs (GS 207.65, -5.52), which happens to be the highest-priced stock in the price-weighted average. With Monday's retreat, the Dow Jones Industrial Average fell below its 200-day moving average. The S&P 500 did not, but stands less than 10 points above that key line of technical support after closing on its lows and turning negative for the year (-0.1%).
The only economic release today was the Pending Home Sales report for May. Keeping with the theme of the day, it disappointed with a 0.9% increase (Briefing.com consensus +1.4%).
Volume was heavier-than-average with 853 million shares changing hands at the NYSE where decliners outpaced advancers by a 10-to-1 margin. In turn, volume in the SPDR S&P 500 ETF Trust (SPY 205.47, -4.35) was the heaviest it has been (185.7 million) since April 17.
Turning our attention to Tuesday, headlines out of Greece will continue to hold sway, but it will be the response around the globe to Monday's equity market losses that will be the focal point. U.S. data will include the Case-Shiller 20-City Home Price Index for April (Briefing.com consensus +5.6%; prior +5.0%), the Chicago PMI for June (Briefing.com consensus 50.0; prior 46.2), and the June Consumer Confidence report (Briefing.com consensus 97.5; prior 95.4).
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