15 Reasons Markets Tanked After Obama’s Jobs Speech and European Central Bank Shakes Up
Dow 10,992 S&P500 1,154 Nasdaq 2,467 Gold 1,855 Oil 87
The Dow (NYSE:DIA), S&P (NYSE:SPY), and Nasdaq (NASDAQ:QQQ) resumed their downward fall as Wall Street begins to return from summer vacation. Oil (NYSE:USO) added $1. Gold (NYSE:GLD) took a slight slide after what’s been an awesome run higher.
Hot Feature: Is the Swiss Franc to Euro Peg Bullish for Gold?
Now, for our analysis of the 15 reasons markets moved this week:
1) ISM report. The Institute for Supply Management’s index of non-manufacturing businesses increased to 53.3 in August, up from 52.7 in July. Economists had forecast the gauge would drop in August to 51, heading dangerously close to 50, anything below which signals contraction. The report followed last week’s ISM report, which had manufacturing increasing as well, but that wasn’t enough to give markets a boost today, as the euro-zone debt crisis continued to be a drag on the markets.
2) Switzerland. The Swiss National Bank has set an exchange rate cap on the Swiss franc (NYSE:FXF) in order to discourage investors from looking to the currency as a safe haven. The SNB said it will “no longer tolerate” an exchange rate below 1.20 francs to the euro (NYSE:FXE), and will keep the franc down by buying foreign currencies in unlimited quantities. The news had the franc dropping sharply against both the euro and the dollar (NYSE:UUP) as investors fled from what was one of the few safe-haven currencies left.
3) Banks. With most of the nation’s top banks facing lawsuits and multibillion-dollar settlements, bank stocks were among the day’s worst performers. Bank of America (NYSE:BAC) fell below $7/share today, bringing the stock’s total YTD decline to 48%, while JPMorgan (NYSE:JPM) fell 4.22%, Wells Fargo (NYSE:WFC) fell 1.86%, and Citigroup (NYSE:C) fell 3.38%.
1) Obama. Media are reporting that President Obama’s proposed job-creation package, which he will present in a nationally televised speech before Congress on Thursday, will institute some $300 billion in tax cuts and government spending. The plan will inject the over $300 billion into the economy in 2012 through infrastructure spending and aid to state and local governments. Anticipation of Obama’s speech tomorrow had markets rallying after three straight days of declines.
2) Germany. Germany’s (NYSE:EWG) top court rejected a series of lawsuits aimed at blocking the nation from participating in emergency loan packages. Though the court ruling requires that the government get approval from parliament’s budget committee before granting aid to other euro-zone economies, the result of the trial could have been much worse — it could have prevented the euro zone’s biggest and strongest economy from contributing to any bailout packages. Without Germany’s participation, bailout efforts would likely fall short, allowing countries like Italy and Spain to slide into another recession, crippled by a massive national debt.
3) Capital goods. Today’s best-performing market sector was that of capital goods, which gained 3.44% today to outperform all three of the major U.S. indices. While stocks like Caterpillar (NYSE:CAT), Boeing (NYSE:BA), Cummins (NYSE:CMI), Honeywell (NYSE:HON), and Deere & Company (NYSE:DE) were the sector’s most heavily traded as per usual, Standex International (NYSE:SXI) and Beazer Homes USA (NYSE:BZH) were the sector’s biggest gainers, climbing 14.70% and 12.09%, respectively.
1) Bernanke. Again failing to instill much confidence in the state of economic recovery, or to announce new policy that might get the recovery back on track, Federal Reserve Chairman Ben Bernanke’s speech today had a depressing effect on both investors and the market. While some took his saying that inflation would be in check in coming quarters as evidence that the Fed might be considering a third round of quantitative easing, Bernanke’s speech contained no allusions to any new policies, though the Fed will still meet later this month to discuss whether there is anything it can do. Instead, Bernanke urged Congress to focus more on stimulating economic growth rather than cutting spending. He will likely wait to see how Obama’s job-creation package, to be outlined in a national address this evening, goes over in Congress, and whether it will succeed in boosting jobs.
2) Initial jobless claims. The Department of Labor’s initial jobless claims report for the week ending September 3 was released this morning, showing the number of first-time claims for unemployment benefits climbing by 2,000 from the previous week’s revised figure of 412,000. Initial jobless claims have remained above the 400K, the point that divides expansion and contraction in the jobs market, for 21 of the last 22 weeks. Furthermore, the four-week moving average, which is considered a more accurate gauge of employment trends increased last week for the third consecutive week.
3) Bank of America. Though BofA is denying the allegations, media have cited inside sources claiming the bank will close 600 branches as part of CEO Brian Moynihan’s “Project New BAC”, in which he also plans to split the company’s banking operations in two, separating consumer from commercial units. Confidence that the bank’s CEO knows what he’s doing or has any solid plans to improve operations is waning, and the news that it may have to close branches all over the country didn’t help. Bank of America shares fell 3.34% today, dragging down the rest of the financial sector with them. JPMorgan (NYSE:JPM) shares declined 3.76%, Citigroup (NYSE:C) fell 3.17%, Goldman Sachs (NYSE:GS) fell 3.13%, Wells Fargo (NYSE:WFC) was down 2.04%, and Morgan Stanley (NYSE:MS) dropped 2.88%.
1) Jürgen Stark. The resignation of one of the European Central Bank’s executive board members was taken as an undeniably bad sign for the economic outlook in Europe, especially because his resignation was thought to be the result of a dispute over the ECB’s bond-buying program. Stark’s resignation immediately had the euro dropping against a basket of global currencies, and had European markets tumbling as well. Of course, the fact that the ECB lowered its economic growth forecast yesterday, and decided to hold interest rates at 1.5% rather than raise them as it has done at the beginnings of the last two quarters, may have had something to do with the continuing sell off today.
2) Greece. It’s been a while since the southern European nation was at the forefront of global economic concerns, but the small Mediterranean country now looks extremely likely to default on its obligations. In fact, many suspect that Greece could default on its government debt as soon as this weekend. Germany has already begun to shore up its banks to defend against such an eventuality. A lot of major banks could go under if Greece were to default, as it would trigger capital requirement problems. People are pulling their money out of equities markets as they wait to see what happens.
3) Fast food. The world’s largest restaurant chain, McDonald’s (NYSE:MCD), reported disappointing same-store sales for the month of August, citing higher commodity costs, which forced the company to raise food prices, as the main factor. For that same reason, many of the chain’s fast-food competitors are also trading lower today, with the same high commodity costs hurting their bottom lines as well. Starbucks (NASDAQ:SBUX), Burger King (BKC), Wendy’s (NYSE:WEN), Yum! Brands (NYSE:YUM), Darden Restaurants (NYSE:DRI), Jack in the Box (NASDAQ:JACK), and Tim Hortons (NYSE:THI) were all trading significantly lower today.