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U.S. stocks dropped sharply Tuesday amid political turmoil in Italy that sent the euro tumbling and ongoing difficult trade talks with China.
The Dow Jones industrial average fell 450 points — or 1.8 percent — amid losses in Goldman Sachs, Boeing, and J.P. Morgan Chase. The S&P 500 fell 1.4 percent, while the Nasdaq composite fell 0.7 percent.
Stocks extended their losses midday as European exchanges closed and the euro fell further against the dollar.
Concerns about a global credit blight and anemic interest rates appeared to weigh on U.S. financial stocks Tuesday, sending shares of the nation’s largest banks tumbling. Goldman Sachs, J.P. Morgan, Citigroup, Morgan Stanley and Bank of America all lost more than 3 percent.
The Financial Select Sector SPDR (XLF) exchange-traded fund fell 3.3 percent, below its 200-day moving average.
Banking investors could be nervous that a decline in global credit could lead to collateral damage to holders of international debt, though widespread strengthening in global government debt and a fall in rates also dampened banking outlook Tuesday.
“The more recent bout of political turmoil spanning across a number of member countries coupled with a clear loss of economic momentum in the region has investors questioning the sustainability of the recovery and the future of the bloc,” Lindsey Piegza, chief economist at Stifel Nicolaus, wrote in an email to CNBC.
The Cboe Volatility Index (VIX) — a measure of market anxiety — hit 17. U.S. stock markets were closed Monday for Memorial Day.
The risk-off attitude fueled demand for safer asset classes, including U.S. Treasurys. The rate on the U.S. 10-year note fell to 2.85 percent Tuesday, down from highs above 3 percent in recent weeks.
The Stoxx Europe 600 fell 1.4 percent, weighed down by a 2.6 percent drop in Italy’s FTSE MIB and a 2.5 percent decline in Spain’s IBEX 35. In Asia, stocks finished the session in the red, as the euro zone’s political turmoil depressed markets worldwide. The Euro Stoxx Banks index fell 4.4 percent, on pace for its worst day since August 2, 2016.
The euro fell below $1.16 — its lowest level this year against the greenback — as Italian debt rates continued to rise. The Dollar Index, which pits the greenback against a basket of currencies, was up 0.7 percent Tuesday at 94.85.
Exacerbating banking sector woes was J.P. Morgan Co-president Daniel Pinto, who revealed Tuesday that trading revenue in the second quarter will probably be flat from a year ago.
“Overall, markets revenue as we see it today will be flat year on year,” Co-president Daniel Pinto said Tuesday during a conference in New York. “The core activities will be up let’s say mid single digits. Then we have a series of one-offs that overall take that back down to flat.”
Over the weekend, Italy’s prime minister appointed former International Monetary Fund official Carlo Cottarelli as interim prime minister to form a new cabinet and restore political order within the country.
The euro zone’s third-largest economy has been struggling to establish a stable government since inconclusive elections in March, with anti-establishment forces abandoning their effort to form a ruling coalition over the weekend.
