Market Recap: S&P Downgrades Italy, Housing Starts Tumble, Markets Wait on Bernanke

Markets closed mixed on Wall Street today: Dow +0.07%, S&P -0.17%, Nasdaq -0.86%, Oil +1.39%, Gold +1.65%.

On the commodities front, Oil (NYSE:USO) climbed to $86.89 a barrel. Precious metals also climbed, with Gold (NYSE:GLD) rising to $1,808.30 an ounce while Silver (NYSE:SLV) climbed 1.95% to $39.93 an ounce.

Hot Feature: European Central Banks Are Hungry for Gold

Today’s markets were mixed because:

1) Italy. Standard & Poor’s cut Italy’s credit rating late Monday by one level to A from A+, citing weak economic growth and criticizing Rome’s response to the debt crisis. Italian Prime Minister Silvio Berlusconi responded, saying that the move was influenced by “political considerations” and media stories rather than economic reality. Markets quickly shrugged off the news, with major indices in Italy, Germany, and London all opening higher this morning.

2) Bernanke. Goldman Sachs (NYSE:GS) provided a preview of what investors could see tomorrow from the Federal Reserve, saying there is a “high probability that the FOMC will announce further easing steps at the conclusion of this week’s meeting.” Goldman went on to say that Operation Twist looks “very likely” and that, “As a complementary measure, we also expect that the committee will announce a cut in the interest on excess reserves (IOER) rate to 0.1% from 0.25%, although this is a much closer call. An IOER cut would lower market interest rates a small amount and could aid communication.” The expectation of good news buoyed markets despite a day full of negative or at least neutral economic data, and had the major indices climbing high in mid-day, though they’ve since declined toward more reasonable levels, given that the IMF announced today that it had lowered its global economic forecast for 2011 and 2012, with growth in Europe and the U.S. stalling.

3) Housing. Both housing starts and completions declined in August from already depressed numbers, according to a monthly report by the Department of Urban Housing and Development, in conjunction with the U.S. Census Bureau. However, building permits increased last month, which means more projects are likely to start within the next six months. The news had building stocks climbing higher, including Toll Brothers (NYSE:TOL), D.R. Horton (NYSE:DHI), KB Home (NYSE:KBH), PulteGroup (NYSE:PHM), Hovnanian Enterprises (NYSE:HOV), and The Ryland Group (NYSE:RYL) all outperforming the major indices.

BONUS: IMF Downgrades Global Economic Outlook

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