Stocks Fall on Cyprus Contagion Fears, J.C. Penney Pops
NEW YORK (TheStreet) -- U.S stock slumped on Monday as investors considered that the harsh bailout plan announced for Cyprus could be enacted in other eurozone countries to recapitalize distressed banks.
The S&P 500 slipped 0.55% to 1,551.10.
J.C. Penney(JCP) jumped the most in six months gaining 6.2% to $16.44 after Omar Saad of ISI Group, a research firm, said in a client note that the department store chain may be able to boost its share price by subleting its properties to other businesses, much like a REIT.
The Dow Jones Industrial Average slumped 62.05 points, or 0.43%, to 14,452.06 after ending its longest winning streak on Friday in nearly 17 years. The Nasdaq lost 0.35% to close at 3,237.59.
Eurozone finance ministers agreed Saturday on a bailout plan for Cyprus that requires a levy of a 9.9% tax on bank accounts with balances above €100,000 and those with less that amount to be taxed at a 6.75% to raise €5.8 billion for the near-bankrupt nation. In effect, the bailout calls on depositors to help recapitalize their banks and take losses in process.
Speculation that Spain and Italy could need similar bailouts was sparking concern that depositors large and small will withdraw money from eurozone banks. Major indices throughout Europe and Asia dropped.
"I think the main message in our mind is: is that situation a cause for us to panic over? We would say no, but perhaps it's something to take pause over," said Cameron Hinds, region chief investment officer for Wells Fargo Private Bank. "I think the U.S. markets have handled it pretty well at this point."
"Cyprus is a tiny country and the Troika (European Union, International Monetary Fund and European Central Bank) would probably be disinclined to experiment'' with depositors, John Higgins, senior markets economist at London-based Capital Economics said in a note Monday.
"Yet none of this may reassure depositors in other beleaguered countries of the euro-zone,'' Higgins added. "If the crisis in the region intensifies, queues outside banks are likely to form that much quicker."
"Every euro area finance minister should be reminded, daily, that history tells us that monetary unions die as a result of bank runs," Paul Donovan, managing director of global economics at UBS in London, said in a note Monday.