U.S. stocks fell on Tuesday as global political crisis ravaged through Italy, sending the euro to its lowest level against the dollar this year.
The Dow Industrial Average fell by 328.72 points or 1.33 percent midday on Tuesday. The S&P 500 fell by 18.75 points or 0.69 percent, while the Nasdaq Composite fell by 44.02 points or 0.59 percent. Cboe Volatility Index gained 13.57 percent.
The Europe Stoxx 600 fell by 1.38 percent, weighed down by the Italian exchange index FTSE MIB falling by 2.65 percent.
Euro prices hit $1.16, the lowest it has been this year as Italian debt rates continued to rise, which led to investors demanding higher yields in return. Radical parties could gain even more power, which worried investors that the vote will turn into a de-facto referendum on the euro.
Lack of reform has increased Italy’s government debt to over 2 trillion euros or $2.3 trillion, becoming the third highest level of debt in the world, behind Japan and Greece. Majority of the debt is owned by Italians, but the European Central Bank also owns a portion, along with banks and investors from France, Luxembourg, Germany and Spain.
Italy has the third largest economy in the eurozone, accounting for 15 percent of the region’s GDP.
The risk lying around is that Italian politicians may look into following certain rules regarding the euro or potentially seek to ditch the currency completely.
The U.S. 10-year note fell by 2.84 percent. The falling yields weighed down U.S. bank shares, as lower rates resulted in lower lending and profits.
Goldman Sachs Group (NYSE: GS) fell by 3.02 percent, Citigroup Inc. (NYSE: C) fell by 3.87 percent, Bank of America Corp (NYSE: BAC) fell by 3.75 percent, Morgan Stanley fell by 4.98 percent and JP Morgan Chase & Co. (NYSE: JPM) fell by 4.02 percent.
Investors are concerned that the political crisis ongoing in Italy could go beyond the country itself, as it is headed towards it new elections after politicians failed to form a government.
Concerns in Italy also extended to Spain as the country’s parliament is expected to vote on Friday whether to oust Prime Minister Mariano Rajoy and his center-right party.