U.S. stocks slipped Thursday as anxiety was high ahead of a crucial summit aimed at resolving the European debt crisis.
The stock sell-off accelerated in the last 20 minutes of trading, with all three indexes falling to their lows of the day, after a flurry of headlines put the likelihood of a debt crisis solution into question.
U.S. stocks were down throughout the day after European Central Bank President Mario Draghi refused to commit to offering broad assistance to troubled eurozone countries and emphasized "substantial downside risks" for the European economy.
Still according to market participants, much of Thursday's trading was maneuvering to bet on what EU leaders might accomplish during their meeting Friday to decide whether the countries will agree to closer political and economic coordination.
"Tomorrow could be one of the most important days in global markets," said Uri Landesman, president of the hedge fund Platinum Partners. "Nobody is insulated from the European Union."
The Dow Jones industrial average () ended the day down 199 points, or 1.6%. The S&P 500 ( ) closed with a 27 point drop, or 2.1%. The Nasdaq ( ) slid 53 points, or 2%. The S&P and Nasdaq dropped back into negative territory for the year.
Financial stocks cratered too. Bank of America (Fortune 500), Citigroup ( , Fortune 500), Goldman Sachs ( , Fortune 500), Morgan Stanley ( , Fortune 500) and JPMorgan Chase ( , Fortune 500) were all down between 3% and 9%.,
"European Union troubles disproportionately affect financials," said Sal Catrini, equity product manager at Cantor Fitzgerald. "Banks have led this rally since Thanksgiving, so it's no surprise that when the market pulls back, they pull back further."
News reports ahead of the market close made U.S. investors that much more fearful going into tomorrow's trading day.
The declines once again reinforce the belief among investors that what happens in Europe can overshadow even continuing positive economic news out of the US or other economies. Investors ignored another round of positive US job numbers released Thursday morning.
Investors also shrugged off news that the European Central Bank cut its key interest rate by a quarter-percentage point Thursday morning, to 1%. The central bank was widely expected to cut its rates by up to 0.5%, as the risk of a broad recession in Europe continues to rise.
"The ECB took positive steps today," said Landesman. "Then this genius comes out and puts a damper on the whole thing. Why bother?"
Draghi dashed hopes -- at least in the near-term -- that the ECB would be likely to extend its reach to buy bonds of troubled European nations including Spain, Italy, and Portugal.
U.S. Treasury Secretary Tim Geithner is in Europe all week to meet with top government officials, highlighting the growing concern in Washington about the eurozone debt crisis.
So what's going to happen tomorrow? Should we expect a Black Friday? Louise Armitstead of the Telegraph reports that a rebellion by Finland, the Netherlands and Ireland is threatening to torpedo the Brussels summit plans – despite repeated warnings that today is the last chance to save the euro:
Hours before leaders arrived in Brussels , the Finnish parliament ruled that treaty changes proposed for the European Stability Mechanism (ESM) were “unconstitutional”.
The summit was further put at risk with news that after failing stress tests, European banks need to raise €115bn (£98bn) in fresh capital to satisfy regulators.
Finland’s grand committee said decisions made by the ESM – the eurozone’s permanent bail-out fund set for launch in 2012 – had to remain unanimous, and not changed to the “qualified majority” that French president Nicolas Sarkozy and German chancellor Angela Merkel have agreed.
The Finns are backed by the Netherlands, which fears proposals to withdraw veto powers from the ESM is an erosion of democracy and would make it vulnerable to funding bail-outs without recourse. Meanwhile, the Irish want to block plans for the “convergence and harmonisation” of the eurozone’s “corporate tax base”.
The rebellion is a serious threat to German and French plans to sign treaty changes today along the lines laid out in their joint letter on Wednesday. In it, the leaders said they hoped all 27 European Union countries would sign.
A draft version of a statement by leaders circulating last night in Brussels said that the ESM would be launched in July, and that countries will need to limit their structural deficit to 0.5pc of their gross domestic product . It added that euro members are prepared to lend 150bn euros to strengthen the International Monetary Fund and would like to see other IMF countries contribute the same amount.
As talks continued early into this morning, Germany remained opposed to both giving the ESM a banking licence - a move that would allow it to access funds from the European Central Bank – and to the issue of joint Eurobonds.
Mr Cameron has demanded that two legal "protocols" to protect City and to preserve EU single market are inserted in any new EU treaty.
The draft British text does not create any new opt-outs but seeks to protect Britain's financial sector from a tide of EU legislation.
Jean-Claude Juncker, head of the Eurogroup bloc of finance ministers of eurozone states, said he would “not accept” summit diversions about what “the UK will not do what all the others have to do”.
However, Mrs Merkel and Mr Sarkozy have urged agreement from the 17 eurozone nations. Mr Sarkozy said: “If we do not reach a deal, there will be no second chance.”
But efforts to make the ESM more powerful and responsive formed a key plank of the summit aims which will now have to be watered down if the rebellion is not assuaged.
Experts warned that France and Germany’s plans were inadequate, anyway.
Raoul Ruparel of think tank Open Europe said: “Rather than focusing their energies on the key issue at hand – avoiding immediate crisis – France and Germany have tried to secure another couple of changes which they are keen on, namely the harmonisation of corporate tax bases and the use of majority voting for ESM decisions. Unfortunately, this looks to have backfired by stoking the anger of Ireland and Finland… [creating] another obstacle to forming a lasting agreement.”
Watching this European soap opera unfold is like watching a bad episode of the Three Stooges. It's amazing how incompetent these European leaders are and what's even more amazing is that the EU lasted this long. But alas, something tells me that a last minute plan to save the day is well underway. If not, we can all look forward to a terrible Christmas and another global meltdown.
Below, a lively debate on Sky News with Nigel Farage and others discussing the prospects for the eurozone. All I know is that no matter what happens, Germans will still make great cars, French great wine, Italians great clothes and Greeks will continue drinking, dancing and partying at the bouzoukia, completely oblivious to this whole European cacophony. Good for them! Think I will join them!