Stocks Plummet, Bonds Rally as Italy's Woes Jolt Assets

U.S. stocks tumbled the most in more than a month, joining a global equity selloff sparked by concern Italy’s political woes will destabilize Europe. Treasuries surged, oil plunged and the yen rallied.

Selling in American equities picked up pace after European shares closed with the worst drop since March. Bank shares paced the rout as the 10-year Treasury yield sank as much as 17 basis points, the most since the U.K. voted to exit the European Union in June 2016.

The dollar climbed as the euro plunged to its lowest since July 2017. Stock volatility soared and investors sought haven assets from the yen to the Swiss franc.

The prospect that Italy might need a fresh election that could be a referendum on the nation’s inclusion in the euro zone rattled global financial markets.

While U.S. assets looked like they’d avoid the worst of the selling, the risk-off tone gripped investors as Europe staggered to an ugly close. Investors are also keeping an eye on geopolitical issues, with the Trump administration giving conflicting signals on talks with North Korea and plowing ahead with plans for tariffs on Chinese goods.

 Italian Political Turmoil and its Impact on Markets

Political turmoil in Italy is rekindling memories of the euro zone’s woes of the past decade, and caution is spilling over into global markets. Pro- and anti-European forces are at loggerheads in Rome, with another election expected as early as September after parties failed to form a government in the wake of a poll in March.

“The political situation in Italy is troublesome and then you get broader concerns about the strength of the euro market in general and that in turn has some people thinking maybe the Fed here in the U.S. slows down on raising rates,” Peter Jankovskis, co-chief investment officer at Oakbrook Investments, said by phone. “That’s been a big pillar for the financials overall, that rates will continue to rise and their margins will continue to improve because of that.”