NEW YORK – U.S. stocks are having a bad flashback to last spring, when fears of the European debt crisis sent the market spiraling lower.
On Monday, election results in Italy showed a potential hung Parliament, leaving investors fearful that the country will be unable to move forward with reforms to revive its moribund economy. Investors worry about the outcome of Italy’s election because it could set off another crisis of confidence in the region’s shared currency, the euro.
As the election news emerged, the Dow Jones industrial average posted in worst drop in more than three months. The Standard & Poor’s 500, which had its first weekly decline of the year last week, piled on more losses Monday.
The Dow fell 216.40 points, or 1.6 percent, to 13,784.17, its biggest drop since Nov. 7. The S&P 500 fell 27.75 points, or 1.8 percent, to 1,487.85, falling below 1,500 for the first time in three weeks. The Nasdaq composite dropped 45.57 points, or 1.4 percent, to 3,116.25
Italy has the eighth-largest economy in the world and the market for Italian government bonds ranks as the third largest, behind Japan and the U.S.
As investors sold stocks Monday, they piled into bonds. The yield on the 10-year Treasury note, which is widely considered an ultrasafe investment, fell. The yield declined to 1.88 percent from 1.96 percent late Friday.
The VIX index, a measure of how volatile investors expect the stock market to be, surged 34 percent to 19, the biggest one-day rise since August 2011.
European stocks gave back much of their early gains. Benchmark indexes rose 0.4 percent in France, 1.5 percent in Germany and 0.8 percent in Spain. Britain’s index was up just 0.3 percent after Moody’s stripped the country late Friday of its triple-A credit rating.