Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Why the Dow Jones Plunged This Morning

The Dow Jones Industrial Average (DJINDICES: ^DJI  )  started the day down 180 points as fears rose over Europe's banking system after one of Portugal's largest banks missed a debt payment, sending Portuguese and European stocks sharply lower. As of 1:20 p.m. EDT the Dow was down 79 points to 16,907. The S&P 500 (SNPINDEX: ^GSPC  ) was down seven points to 1,965.

As you might expect, financials are leading the stock market down today, though materials companies are not far behind. The S&P 500's losses are concentrated in those two sectors, while 25 of 30 Dow stocks are in the red.


The trouble is being caused by one of Portugal's largest conglomerates, Espirito Santo International, and its publicly traded bank subsidiary Banco Espirito Santo, whose stock dropped 17% today before trading in its shares was halted.

Source: Google Finance.

In January, concerns arose over practices and accounting at the conglomerate and its relationship with the bank. The private conglomerate was using the bank to fund itself by selling debt to the bank's customers and was allegedly misrepresenting its financial condition. An audit was conducted under the direction of the Portuguese central bank, which found accounting irregularities at the conglomerate and determined that the conglomerate was in "serious financial condition."

News came out after the European markets closed yesterday that the conglomerate had delayed payments on some short-term debt that Banco Espirito Santo had sold to its clients. The interrelations between the two companies and the lack of understanding of how bad the situation really is has investors unloading the bank's shares. Investors are also fleeing Portugal Telecom, as it owns an estimated $1.2 billion worth of Espirito Santo debt as well as Portuguese government debt, and it is unclear what effect this will have on the financially struggling government.

U.S. financial companies are selling off in response because they are all exposed to Europe in some capacity. If financial problems spread from Portugal around the European banking system, U.S. banks will take a hit. However, the problems look contained for now, which is why the Dow bounced back from its early sell-off.

What should you do now?
Nothing. If your investment strategy can be changed by one European bank's problems, you're doing it wrong. The U.S. economy continues to slowly get stronger, as does the world economy. While stocks and bonds look pricey, your main focus should be to stick to your strategy, constantly educate yourself, find great companies, and invest for the long term.

Warren Buffett: This new technology is a "real threat"
At the recent Berkshire Hathaway annual meeting, Warren Buffett admitted this emerging technology is threatening his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. Find out how you can cash in on this technology before the crowd catches on, by jumping onto one company that could get you the biggest piece of the action. Click here to access a FREE investor alert on the company we're calling the "brains behind" the technology.

Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3024630, ~/Articles/ArticleHandler.aspx, 9/2/2015 9:02:05 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Dan Dzombak

Dan Dzombak has written for The Motley Fool since 2008. He covers value investing, investing process, and success among other things. You can follow him on Facebook or Twitter by clicking the buttons below or head over to his blog at

Today's Market

updated 11 hours ago Sponsored by:
DOW 16,058.35 -469.68 0.00%
S&P 500 1,913.85 -58.33 0.00%
NASD 4,636.11 0.00 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/1/2015 4:35 PM
^DJI $16058.35 Down -469.68 +0.00%
^GSPC $1913.85 Down -58.33 +0.00%
S&P 500 INDEX CAPS Rating: No stars