Investors fled from stocks in Europe and the U.S. and retreated to the safety of government bonds. Measures of volatility spiked. In many ways, it looked similar to previous episodes in Europe’s long-running debt crisis, except that this time, investors said, they weren’t quite as worried.
A series of events over the weekend left Greece perilously close to defaulting on its debts. Greece’s Prime Minister, Alexis Tsipras, said his government would hold a referendum on budget proposals made by the country’s lenders. European officials refused to extend the country’s bailout program, which expires on Tuesday, the same day it’s supposed to make a debt payment to the International Monetary Fund.
The Standard & Poor’s 500 index dropped 43.85 points, or 2.1 percent, to 2,057.64. The Dow Jones industrial average lost 350.33 points, or 2 percent, to 17,596.35, and the Nasdaq composite fell 122.04 points, or 2.4 percent, to 4,958.47.
The losses wiped out all the gains for the Dow and S&P 500 indexes this year.
In Europe, Germany’s DAX lost 3.6 percent while France’s CAC-40 lost 3.7 percent. The FTSE 100 index of leading British shares fell 2 percent. Greece’s stock market was closed. Investors bought German and British government bonds, which are seen as safe havens, and sold bonds issued by Greece’s government, sending those yields sharply higher.
The last time Greece’s troubles shook U.S. markets, there were plenty of other problems. In 2012, Spain had entered a recession, and the worry was that it was too big of a country to rescue. Sputtering U.S. job growth added to the anxiety. That spring, the S&P 500 index lost 9.9 percent within two months. Investors sought safety in U.S. Treasury bonds, driving long-term interest to historic lows.
The rating agency Standard & Poor’s said Monday that it interprets the Greek government’s decision to hold a referendum as a sign that it will put “domestic politics over financial and economic stability, commercial debt payments and eurozone membership.”
If Greece defaults and switches to a new currency, it’s sure to shake global financial markets. But the world is unlikely to see anything like the full-blown crisis of 2008.
The European Central Bank is also ready to swing into action to prevent a panic. The ECB has already committed to buying 60 billion euros a month in corporate and government bonds to push down interest rates and help the European economy. It could buy even more, and flood financial markets with cash, to calm jittery European investors.
Bond prices rose. The yield on the 10-year Treasury note fell to 2.33 percent from 2.47 percent late Friday, a big move. The euro rose to $1.1242 from $1.1160.
Gold edged up $5.80 to $1,179 an ounce, and silver slipped 7 cents to $15.66 an ounce. Copper edged up half a cent to $2.64 a pound.
Crude oil fell $1.30 to close at $58.33 a barrel in New York. Brent crude fell $1.25 to close at $62.01 a barrel in London.
In other trading in New York:
- Wholesale gasoline fell 1.9 cents to close at $2.030 a gallon.
- Heating oil fell 2.6 cents to close at $1.837 a gallon.
- Natural gas rose 3.2 cents to close at $2.805 per 1,000 cubic feet.