Monday , May 07, 2012 - 9:33 AM
NEW YORK -- U.S. stocks were under pressure in early trading Monday after angry voters in Greece and France rejected painful budget cuts demanded by international lenders.
Investors are uncertain over how the results will affect Europe's plans to rein in spending and keep the euro zone's debt crisis from worsening.
The Dow Jones industrial average was down 24 points to 13,013 in the first half-hour of trading. The Standard & Poor's 500 edged up less than a point to 1,369. The Nasdaq composite index was nearly unchanged at 2,956.
In Europe, most markets recovered from early losses and turned higher. Greece was the exception: the main index in Athens plunged 6.6 percent after Greek voters expressed their anger over crippling income cuts by punishing mainstream politicians. No party has enough votes to govern alone, leaving the parliament split. French voters ousted President Nicolas Sarkozy and elected Socialist Francois Hollande, who pledged "to finish with austerity."
The verdict from European voters will likely force leaders there to go back to the table in coming up with a more acceptable solution to the debt crisis that has plagued many nations. The deep cuts in government spending only worsened the situation in many countries, leading several countries into deeper economic distress an increasing already high unemployment.
Many believe the austerity program is necessary to keep bond investors from panicking about the possibility that more European nations will default or require bailouts.
However, a growing number of politicians, like France's Hollande, say the cuts have been too much, too fast. They say the region's economy can't return to growth unless governments stop tightening the fiscal noose and start spending again to create demand. Some economists also now believe that the cuts have to be accompanied by some government economic stimulus to promote growth.
No matter what the outcome may be, the path forward seems fraught with uncertainty.
That was reflected in how the markets have reacted. Greek shares plunged 8.2 percent in early trading, then recouped some ground. France's CAC-40 was up 0.7 percent and Spain's Ibex-35 was up 1.5 percent. Germany's DAX was flat.
Bond investors were also uncertain. The benchmark yield on the 10-year Treasury note dropped to 1.83 percent overnight, but by mid-morning Eastern time it was back up to 1.86 percent, only slightly below the 1.88 percent level it was trading at late Friday.
In the U.S., investors are also awaiting for data that will reveal how American consumers are faring, a key factor for any full economic recovery at home.
The Federal Reserve will release its latest consumer borrowing report Monday afternoon. Economists predict that consumer borrowing rose by $10 billion in March, according to a survey by FactSet, which would mark the seventh consecutive month of gains.
In other trading:
-- Cognizant Technology Solutions Corp. plunged 14 percent after the information technology services provider lowered its forecast for the full year on low demand, echoing the bleak outlook from other rivals due to the uncertain global economy.
-- Meat products maker Tyson Foods Inc. rose 3 percent after reporting an increase in its second-quarter profit on higher beef and chicken prices.
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