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Stocks End Lower, S&P Below 1340; Vix Spikes

Stocks closed sharply lower across the board Monday, with the S&P 500 breaking below the closely-watched 1,340 level, as worries over Greece's potential exit from the euro zone and fears over a slowdown in China kept investors on edge.

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The Dow Jones Industrial Average slumped 125.25 points, or 0.98 percent, to close at 1,2695.35, led by BofA and JPMorgan . Cisco was among the only gainer on the Dow.

The blue-chip index's year-to-date gain has been cut by more than half in the last two weeks.

The S&P 500 erased 15.04 points, or 1.11 percent, to finish at 1,338.35. The Nasdaq fell 31.24 points, or 1.06 percent, to end at 2,902.58. Both indexes tumbled to hit three-month lows.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, rallied to trade above 21 for the first time in nearly three months.

All 10 S&P sectors ended in negative territory, led by financials and energy.

Greek leaders extended their talks to form a coalition government to Tuesday, after last-ditch efforts failed over the weekend. And with new elections in June becoming more likely, investors were worried that the nation may eventually be forced out of the euro zone.

Concerns over Greece's exit pushed the 10-year Spanish bonds yields to the highest since last December.

“If Greece leaves the Euro, it could be cataclysmic—it could be like Lehman on steroids,” said Art Cashin, director of financial operations at UBS Financial Services. “It will be a process, but it will be a rapidly moving process…Greek banks got hit badly because one of the first steps in the proceeds will be a run on the banks. It will start in Greece, but it will accelerate to [peripheral countries].”

European shares closed sharply lower, with the FTSEurofirst 300 index hitting its lowest point since early January.

The lack of corporate earnings and major economic news in the U.S. will cause investors to keep their focus on the euro zone, said Scott Bauer, senior market strategist at Trading Advantage on CNBC’s “Squawk on the Street.” And “if nothing good comes out of Europe,” the S&P could even drop to as low as 1,260, the halfway point between the lows in October and the recent highs.

Oil declined for a third session, to settle at $94.78 a barrelamid the deepening euro zone crisis and new fears of a slowing Chinese economy. And gold tumbled to settle at $1,560.60 an ounce, erasing all of its gains for the year.

Meanwhile, Chesapeake Energy rallied after the energy company told investors that it was confident it would complete assets sales to plug a funding gapestimated at $10 billion this year.

Avon Products jumped after the cosmetics company said it would consider the latest proposal from Coty. Last week, Avon rejected Coty's sweetened bid of $24.75 a share.

JPMorgan Chase continued to slide after the financial giant disclosed last week that it suffered a trading loss of at least $2 billion, due to a failed hedging strategy. The firm's CIO Ina Drew announced she will retire from her post, following the trading loss. Shares of other major banks were lower, including Morgan Stanley , Goldman Sachs and Citigroup .

Yahoo will also be in the spotlight following the resignation of CEO Scott Thompsonafter discrepancies were found in his resume.

Best Buy edged higher after the consumer electronics retailer said founder Richard Schulze would leave his chairman role after an investigation found that he knew that former CEO Brian dunn was having a relationship with a female employee and failed to alert the audit committee.

Groupon surged ahead of its earnings reportafter the bell tonight. Shares have plunged more than 50 percent since the daily-deal website started publicly trading last November.

“We still believe that Groupon is global, local advertising at scale. Some 30 million merchants around the world use Groupon’s service to reach the more than 180 million subscribers and it’s a different form of advertising,” said Daniel Ernst, principal of Hudson Square Research, who has a “buy” rating on the firm.

Facebookcontinues its IPO roadshowthis week, with shares reportedly set to debut on the Nasdaq Friday under the ticker symbol "FB."

—By CNBC’s JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)

Coming Up This Week:

TUESDAY: CPI, retail sales, Empire state mfg survey, Treasury international capital, business inventories, housing market index, JPMorgan shareholders mtg, Morgan Stanley shareholders mtg, credit-card default rates reported; Earnings from Home Depot, Dick's Sporting Goods, TJX, Saks, JCPenney
WEDNESDAY: Weekly mortgage apps, housing starts, industrial production, oil inventories, FOMC minutes, AIG shareholders mtg, Southwest Air shareholders mtg; Earnings from Target, Abercrombie & Fitch, Deere, Staples, Limited Brands
THURSDAY: Jobless claims, Philadelphia Fed survey, e-commerce retail sales, leading indicators, Facebook pricing, Home Depot shareholders mtg, Intel shareholders mtg; Earnings from Wal-Mart, Dollar Tree, Ross Stores, Aeropostale, Gap, Marvell Tech
FRIDAY: Facebook begins trading, JCPenney shareholders mtg, G8 summit begins; Earnings from Ann

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