Weekly Market Recap: Spain and Italy Supersede Black Friday Hype

Monday

Today’s markets were down because:

1) Europe. Mariano Rajoy and his conservative People’s Party won the biggest majority in a Spanish election in almost 30 years on Sunday, but despite Rajoy’s pledge last night in his victory speech that Spain would “stop being a problem and become part of the solution again,” investors were unsurprisingly not relieved. While Rajoy’s absolute majority means he will have no trouble pushing through heavy-handed austerity measures that will make the EU happy, the general consensus now seems to be that only eurobonds or a massive bond purchasing program can effectively tackle the sovereign debt crisis and put an end to its rampage through Europe, both of which have met with heavy opposition from the euro zone’s biggest players.

2) Congress. The 12-member congressional supercommittee tasked with finding at least $1.2 trillion in budget savings over the next decade essentially declared defeat today after three months of talks ended in a stalemate, finally quashing any remaining hope that Congress can put aside party politics in order to compromise for the sake of getting things done. Without a debt deal, automatic spending cuts will kick in at the beginning of 2013 — cuts that deal a heavy blow to both social programs and defense spending, thus dealing both Republicans and Democrats a heavy blow.

3) Banks. Though selling was broad today, financial shares were the biggest losers, as usual. JPMorgan (NYSE:JPM), Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), and Bank of America (NYSE:BAC) all declined more than 3%.

BONUS: Foreigners Prove U.S. Dollar Still Safest Currency in the World

Tuesday

Today’s markets were down because:

1) Spain. Yields on short-term Spanish bonds surged to a fourteen-year high on Tuesday, signaling that an election victory on Sunday for the conservative People’s Party has done little to instill faith in the government’s ability to see Spain through the financial crisis. However, Spain’s skyrocketing bond prices became less of a reason for concern when the International Monetary Fund announced that it had enhanced its lending facility and introduced a new six-month liquidity line, creating a safety net for Europe.

2) FOMC. Minutes from the Federal Open Market Committee’s last meeting show that the Federal Reserve might be considering further easing. The news helped equities recover this afternoon from a drop spurred by a Commerce Department report that downwardly revised earlier estimates of third-quarter gross domestic product.

3) Banks. In October, the 10 largest U.S. prime money market funds had a 9% M/M drop in their exposure to EU banks and enlarged their Treasury holdings to almost 30%, according to Fitch. The news hit European banks hard, including Deutsche Bank (NYSE:DB), Credit Suisse (NYSE:CS), Barclays (NYSE:BCS), Lloyds (NYSE:LYG), RBS (NYSE:RBS), UBS (NYSE:UBS), HSBC (NYSE:HBC).

Friday

Today’s markets were down because:

1) Europe. Europe’s debt crisis continued to burden investors this week after a series of lackluster debt auctions saw yields on Spanish, Italian, French, and even German debt rising. Meanwhile, Americans awoke from their tryptophan-induced comas this morning to find that Standard & Poor’s downgraded Belgium’s credit rating to double-A from double-A-plus, citing concerns about funding and market pressures, just a day after Moody’s Investors Service downgraded Hungary to junk and Fitch downgraded Portugal to junk. Black Friday indeed.

2) Tech. Internet stocks were some of the biggest decliners in today’s sell-off. Netflix (NASDAQ:NFLX), LinkedIn (NYSE:LNKD), and Groupon (NASDAQ:GRPN) all continued their recent downward trends. Meanwhile, Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY) also moved lower, in spite of positive Thanksgiving e-commerce data. Retail stocks were in focus today as shoppers headed for the stores and braved huge crowds and the threat of trampling to get the best deals, but e-commerce sites will be back in focus on Cyber Monday.

3) Retail. With consumer spending already lagging after a stellar third quarter, retail stocks were in focus today as companies like Macy’s (NYSE:M) and Best Buy (NYSE:BBY) tried to lure in customers with huge Black Friday sales. Though both stocks slipped slightly, as did the broader markets, whether sales justify such a move remains to be seen. Fox News has cited retailers who are calling this Black Friday one of the best in history as droves of people pour into stores like Target (NYSE:TGT) and Wal-Mart (NYSE:WMT). However, Reuters says that, while today may be the busiest day of the year in terms of store traffic, it does not mean that sales will soar for the season. Many people out there are taking advantage of bare-bone deals on which retailers are forfeiting a large share of profits, but may not be buying more than the essentials, or be willing to return to the stores when prices return to normal.

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