MarketView for February 25

Summary

Wall Street suffered its largest decline since this past November after a strong showing in Italian elections by groups opposed to the country's economic reforms triggered worry that Europe's debt problems could once again destabilize the global economy. The drop marks the largest decline by the Standard & Poor's 500 Index since November7 and drove the S&P down to its lowest close since January 18.

The CBOE Volatility Index, Wall Street's favorite barometer of fear, was up 34 percent, its largest increase since August 18, 2011. Selling accelerated late in the trading session after the S&P 500 fell below the 1,500 level, which has acted as a significant support point. Monday marked the S&P's first close under 1,500 since February 4.

Italy's center-left coalition holds a slim lead over former Prime Minister Silvio Berlusconi's center-right bloc in the election for the lower house of parliament, three TV projections indicated. But any government must also command a majority in the Senate, a race that is decided by region. The resulting gridlock in parliament could lead to new elections and cast into doubt Italy's ability to pay down its debt.

Earlier polls pointing to a center-left victory boosted stocks in Milan and other European markets, and also helped lift the S&P 500 to a session high of 1,525.84 on optimism that Italy would continue down its austerity path.

After a strong start to the year, equities have retreated more recently. The S&P 500's slight fall last week was its first weekly drop after a seven-week string of gains.

In Monday's volatile session, banks and other financial stocks were among the worst performers on worries about the sector's exposure to Italy's massive debt.

The CBOE Volatility Index .VIX ended at 18.99, up 34.02 percent.

Although the overall market lost ground on Monday, there were a few bright spots. Barnes & Noble shares ended the day up 11.5 percent to $15.06 after the bookseller's chairman offered to buy its declining retail business.

Amgen closed up 3.1 percent at $89.55, after rival Affymax issued a voluntary recall of its only drug, an anemia treatment that competes with Amgen's top-selling red blood cell booster, Epogen. Affymax shares lost 85.4 percent to $2.42.

The financial markets will face a test with the looming debate over so-called sequestration - U.S. government budget cuts that will take effect starting on Friday if lawmakers fail to reach an agreement over spending and taxes. The White House issued warnings about the harm the cuts are likely to inflict on the economy if enacted.

Lowe's lost 4.8 percent to $35.86 after the home improvement retailer posted fourth-quarter earnings.

With 83 percent of the S&P 500 companies having reported results so far, 69 percent beat profit expectations, compared with a 62 percent average since 1994 and 65 percent over the past four quarters, according to Thomson Reuters data.

Fourth-quarter earnings for S&P 500 companies are estimated to have risen 6 percent, according to the data, above a 1.9 percent forecast at the start of the earnings season.