3 Reasons Markets Were Down On Fears Over France

Markets closed down on Wall Street today: Dow -4.64%, S&P -4.43%, Nasdaq -4.09%, Oil +2.85%, Gold +2.73%.

On the commodities front, Oil (NYSE:USO) climbed to $81.56 a barrel. Precious metals also gained, with Gold (NYSE:GLD) reaching $1,790.60 an ounce and Silver (NYSE:SLV) climbing 3.82% to $39.33 an ounce.

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Today’s markets were down because:

1) France. With one of the largest economies in Europe, second only to Germany, France’s downfall would mark the downfall of many. So far France and Germany have seemed relatively safe compared to smaller countries like Greece and Portugal, and even larger countries like Italy and Spain, where the debt-to-GDP ratio far exceeds that of the EU’s stronger members. But France’s budget deficit has been steadily rising, and now the country’s AAA rating could be in danger. French President Nicolas Sarkozy must now do what the U.S. could not: enact a deficit-reduction plan that satisfies all of the major ratings agencies in order to avoid a downgrade. French bank stocks were trading markedly down today on rumors of a possible downgrade, while the cost of insuring French debt rose to a record high. France’s major stock index ended the day down 5.5%.

2) Recession, part 2. It’s looking more and more likely that the U.S. could fall into another economic recession, this one worse than the last. A survey of economists showed that the likelihood of another recession increased from 15% to 25% in just a few weeks. And many are arguing that another recession, while the economy is still not fully recovered from the last, could be even worse. Furthermore, with the 2012 elections around the corner and the government agreeing to cut spending, it’s unlikely another stimulus plan will help buoy the economy, which means the next recession could actually be a depression. Markets are already at their lowest levels this year, with the Dow down almost 2,000 points just in the past two months, and the S&P 500 down 10.88% for the year

3) Banks. No sector is so volatile as the financial sector (NYSE:XLF). On Monday, when markets had their worst day in nearly 3 years, guess which sector performed the worst on the S&P 500? And on Tuesday, when markets rallied, guess which sector performed the best? Now today, as markets reverse yet again, giving up yesterday’s gains, banks continue to be the biggest drag, with Bank of America (NYSE:BAC), Citigroup (NYSE:C), and Goldman Sachs (NYSE:GS) leading the way, all falling over 10% during regular trading. Not far behind were Wells Fargo (NYSE:WFC), Morgan Stanley (NYSE:MS), and PNC Financial Services (NYSE:PNC). The sector’s best performer was JPMorgan (NYSE:JPM), giving up 5.58% of its share price.

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