U.S. Stocks Still Trading on Eurozone Headlines

U.S. stocks closed decidedly in the negative territory on Wednesday as high expectations regarding the Eurozone bailout were dimmed.

The S&P 500 Index fell 15.50 points, or 1.26 percent, to close at 1,209.88. The Dow Jones Industrial Average dropped 72.43 points, or 0.63 percent, to end at 11,504.62. The Nasdaq Composite declined 2.01 percent.

Earlier in the session, U.S. stocks were mixed as offbeat earnings from banks like Morgan Stanley (NYSE:MS) lifted the financial sector while Apple’s disappointing earnings report dragged down tech shares.

However, financials eventually closed lower on dimmed hopes of a grand Eurozone bailout.

Back on Tuesday, optimism was running high after a Guardian report claimed that France and Germany will endorse an expansion of the Eurozone bailout fund to two trillion euros.

However, Dow Jones later cited an official who said the two trillion figure is “totally wrong.”

On Wednesday, the Financial Times also reported that the Eurozone bank recapitalization amount may be less than 100 billion euros, which is short of the IMF’s 200 billion euro estimate.

The price action of the U.S. stock market in the past two weeks proves that it clearly cares about the European debt crisis.

The counterparty exposure between U.S. and Eurozone banks are “significant,” Frederick Cannon, director of research at Keefe, Bruyette & Wood, told Bloomberg TV.

“Like pulling petals from a daisy, the U.S. equity markets rise one day, only to fall the next, on headlines announcing the likely success or failure of a European sovereign debt solution,” said Sam Stovall, Chief Equity Strategist of Standard and Poor’s, in a research note.