NEW YORK — A downgrade of Spain’s debt rating rekindled investors’ broader fears about European credit, sparking a sharp decline in stocks in the last session of May, which saw the market’s worst monthly drop since February 2009.
Trading was especially volatile in the afternoon after Fitch Ratings lowered its rating on Spain’s debt to AA+ from AAA, but said the country’s outlook is stable. The downgrade came despite last week’s passage of austerity measures by the Spanish government — a move that bulls had hoped would help the country avoid struggles similar to those of Greece.
The Dow Jones industrial average fell 122.36 points, or 1.2 percent, to 10136.63, led by declines of more than 2.5 percent each in 3M, Bank of America and Walt Disney. Industrials weakened as fresh euro-zone concerns reignited worries that global demand may wane. Boeing fell 1.5 percent, while Caterpillar was off 2.1 percent.
Traders and analysts have recently become less concerned about the chances of a chain reaction of defaults by heavily indebted euro-zone members that might jolt the global financial system. But they’re becoming more concerned about a long slog for the continent before it returns to full economic health.
“It’s looking to us like Europe’s problems won’t necessarily spread, but they are something the rest of the world is going to feel” in coming months, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. Regarding the Spain downgrade, he added: “I really thought the steps they’d taken would keep the ratings agencies at bay. This is a big disappointment.”
The Dow ended down 7.9 percent for May, its biggest monthly drop since February 2009, when it was still on its way to the lows of the last bear market. The measure also snapped a three-month winning streak and set its worst percentage performance for May since 1962.
Volume was light ahead of a three-day weekend. Composite turnover in New York Stock Exchange-listed companies hit 5.1 billion shares, well below the month’s average daily volume of nearly 7 billion shares.
