After a January that saw a jump of 6% culminating at 14,000 last Friday, the Dow Jones Industrial Average (DJINDICES:^DJI) gave back some of those gains back today, falling on European malaise. The blue chips finished down 130 points, or 0.9%, while the European STOXX 50 fell by a whopping 3.1%.
The European crisis had stayed out of the news during the Dow's bull run, much to the delight of investors, but today a scandal broke that Spanish Prime Minister Mariano Rajoy and other members of his party had been receiving secret cash payments from the government. The Spanish stock market plummeted 3.8% and bond yields rose to their highest level since mid-December -- a sign of waning confidence in Spanish solvency. Meanwhile, in Italy, stocks fell 4.5% as Silvio Berlusconi gained in election polls after promising to lower taxes if he wins. Market-watchers see a new Berlusconi administration as a hindrance to fiscal stability.
In the U.S., December factory orders were short of expectations, coming at a 1.8% increase against estimates of 2.4%.
Pacing the Dow's fall for the second day in a row, Merck (NYSE:MRK) dropped 2.3% as two analysts downgraded the stock after its latest earnings report and news that FDA submission would be delayed. The analysts expressed concerns about the delay in odanacatib, its new osteoporosis drug, and had doubts about whether its cholesterol drug Vytorin actually decreases heart disease and stroke risk in patients.
Baidu was down 5.9% as growth in expenses outpaced its 42% revenue jump, meaning operating profit grew just 24%. China's favorite search engine also disappointed the market, with revenue guidance for the next quarter between $945 million and $976 million, below the Wall Street consensus at $967 million.
Yum! Brands, meanwhile, fell 5.4% after hours, following a 3% drop the trading session. The parent of KFC, Pizza Hut, and Taco Bell said that it expects 2013 earnings to decline because of issues in China, including a food-safety scare. Same-store sales during the quarter at Yum!'s Chinese locations fell 6% because of reports of chemical residue found in its chicken, and the same figure plunged in January by 37%, though that month was not included in this quarter's report. Subsequently, management is now projecting earnings to decline by the mid-single digits in 2013.
Finally, BlackBerry (NYSE:BB) shares kept up their roller-coaster ride, jumping 15% after Bernstein Research upgraded the stock, saying sales of the BlackBerry 10 have been "particularly positive" after the new devices made their debut in the U.K.
One last item of note for investors: The Department of Justice has filed a lawsuit against Standard & Poor's, accusing the ratings agency of fraud in its assessment of mortgage bonds in the run-up to the financial crisis. While the suit will not have an immediate impact on markets, it will hopefully be an important step a more transparent and trustworthy financial system, less susceptible to bubbles and other forms of manipulation.