MARKET REPORT

Bad loans in Spain upend stocks

— The three major U.S. stock indexes sank Wednesday after a dismal report about bad loans on the books of Spanish banks. On Tuesday, U.S. stocks soared after Spain held a successful auction of two-year bonds.

The results indicate how the stock market can whipsaw on even incremental news out of Europe, and it has done just that for the past couple of weeks. In the 12 trading days of the second quarter so far, the Dow has fallen by triple digits four times, with Europe as a notable factor. Twice, it has risen by that same proportion.

It’s not just the news itself, which can vary from hopeful to abysmal and back again in just a couple of days, it’s that investors have been inconsistent in how they react, sometimes shrugging off what seems like significant developments and at other times seizing on what seems piecemeal.

It’s a time when “one headline can get you to change your mind,” said Gary Flam, portfolio manager at Bel Air Investment Advisors in Los Angeles. “When you go from one day being concerned about Spain to the next day, ‘Oh, they had a good auction,’that’s a lack of conviction,” meaning investors aren’t sure what to think.

The market “is really difficult to classify” at the moment, added Mike Schenk, senior economist at the Credit Union National Association, a trade group. “On one hand you hear about ‘best day since whatever,’ on the other hand you have days and weeks that don’t look good at all.”

The Dow Jones industrial average fell 82.79 points to 13,032.75. That was a U-turn from Tuesday’s gain of 194 points.

The euro fell and Treasury prices rose as nervous investors looked for safe places to store their money. The yield on the 10-year Treasury note fell back below 2 percent and was 1.98 percent in afternoon trading.

A flood of first-quarter earnings also influenced the market in temperamental ways. Of the S&P 500 companies to report earnings so far, 78 percent have recorded per-share earnings that beat analysts’ estimates, according to FactSet senior earnings analyst John Butters. But that hasn’t always been enough to lift their share prices. IBMand Intel beat estimates late Tuesday but fell the most in the Dow on Wednesday because investors were disappointed by flat revenue.

The Standard & Poor’s 500 fell 5.64 points to 1,385.14 and the Nasdaq composite index fell 11.37 points to 3,031.45. The declines come after a stellar first quarter, when the Dow and the S&P 500 recorded their best openings to the year since 1998.

For every stock that advanced on the New York Stock Exchange, another two fell. Consolidated volume was a light 3.4 billion shares.

Spain reported Wednesday that the proportion of bad loans at its banks has risen to an 18-year high, and its benchmark stock index fell 4 percent.

For all the headlines that the Greek crisis generated, Spain is potentially a much bigger problem. Greece makes up about 2 percent of the gross domestic product of the 17 countries that use the euro, but Spain makes up 11 percent. Its problems also raise questions about how far the crisis will spread.

“If you see deterioration in Spain, you’ve got to ask yourself, ‘What happens with Portugal? What happens with Italy?’” said Quincy Krosby, market strategist for Prudential Financial.

Business, Pages 26 on 04/19/2012

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