Market Recap: 15 Reasons the Dow Rallied 4.7% and Gold Dipped

Dow 11,509 S&P500 1,216 Nasdaq 2,622 Gold 1,812 Oil 87

The Dow (NYSE:DIA), S&P (NYSE:SPY), and Nasdaq (NASDAQ:QQQ) finally rallied all week. Makes a rational actor ask, “What European debt crisis?” On the commodities front, Oil (NYSE:USO) ended the week where it started. Gold (NYSE:GLD) sold off as traders moved back into equities on rhetoric about Germany (NYSE:EWG) and France (NYSE:EWQ) supporting Greece.

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Now, for our analysis of the 15 reasons markets moved this week:

Monday

1) Greek default. U.S. markets began the day sharply lower than where they closed as Greek default looked imminent. The country has yet to institute the necessary austerity measures to receive its next tranche of aid, without which they will surely default in their debt. Germany began working on a plan to hedge against losses that could be incurred by such a default, as Germany is the single-largest holder of Greek debt, with $14.1 billion in Greek government bonds.

2) Banks. Today CEO Brian Moynihan announced that Bank of America (NYSE:BAC) planned to cut $5 billion in annual costs by 2013, later announcing that it would do so partly by cutting 30,000 jobs. Bank of America’s shares started the day up but began to fall in the afternoon. It may be that investors took to heart Citigroup’s (NYSE:C) forecast that U.S. banks’ profits would decline an average of 45% during the third quarter, or maybe it was general anxiety over the global economic outlook and banks’ exposure to Greek debt, which had french banks Société Générale, BNP Paribas, and Credit Agricole all trading significantly lower today. Bank of America was down late in trading, as was JPMorgan (NYSE:JPM), Citigroup, Goldman Sachs (NYSE:GS), Wells Fargo (NYSE:WFC), and Morgan Stanley (NYSE:MS). But when markets rallied in the last half hour of trading, all but Morgan Stanley turned positive.

3) Italy. Markets were set to close the day down, rallying in the final few minutes of trading as news emerged that Italy had turned to China for help weathering its debt crisis. Italy is asking the cash-rich country to buy Italian bonds in order to hedge against default. Though no decision has been made, Chinese government officials met in Italy last week to discuss the possibility of buying significant quantities of Italian bonds and investments in strategic companies. As Europe’s third-largest economy and the largest of those facing a serious debt crisis, news that Italy could soon be in the clear, and furthermore, that the ECB, France, and Germany would not have to bear the brunt of its bailout, gave stocks a remarkable last-minute jump to end the day up.

Tuesday

1) Technology. In a rare move, markets moved higher today, not because of positive economic data, but because of strong companies and sectors. Cisco (NASDAQ:CSCO) and Microsoft (NASDAQ:MSFT) were two of today’s best performers after the former outlined streamlining efforts aimed at cutting annual costs by $1 billion, and the latter unveiled Windows 8. The new OS comes with a dual interface enhanced for both tablets and PCs, which an early review calls the new OS a playground for for developers and coders, and is seen as critical in encouraging quality app-writing.

2) Health insurance. Aetna (NYSE:AET) climbed roughly 5.5% today after the firm said strong results so far in the third quarter will enable it to beat street earnings estimates of $4.66 a share. Aetna led insurers higher, with WellPoint (NYSE:WLP), CIGNA (NYSE:CI), UnitedHealth Group (NYSE:UNH), Humana (NYSE:HUM), and WellCare Health Plans (NYSE:WCG) all climbing higher. 

3) Airlines. While all sectors ended the day in the black, the airline sector outperformed them all, led higher by US Airways (NYSE:LCC), which climbed as much as 20% today after the head of the airline said September unit revenue would grow an estimated 13% thanks in part to seat-capacity cuts. Industry executives confirmed that they have yet to see any signs of the contracting economy hurting their September bookings. Most major airlines plan to decrease seat capacities, allowing them to increase ticket prices while filling plans. The news had the entire sector outperforming the markets, with JetBlue (NASDAQ:JBLU), Alaska Air (NYSE:ALK), United Continental (NYSE:UAL), Southwest (NYSE:LUV), Delta (NYSE:DAL), and AMR Corp. (NYSE:AMR) all climbing.

Wednesday

1) Greece. Following a telephone conference call with Greek Prime Minister George Papandreou and French President Nicolas Sarkozy, German Chancellor Angela Merkel stressed the importance of Greece staying in the euro zone, alleviating fears that Greece might be ejected from the euro zone if it failed to make steps toward improving its debt situation. Papandreou affirmed that, despite a few hiccups in negotiations, Greece planned to make the necessary fiscal steps required of the nation as part of its bailout package. 

2) France. While Moody’s downgraded two of France’s big three banks, Crédit Agricole and Société Générale, the downgrades weren’t as extreme as expected. Bank of France governor Christian Noyer noted that Moody’s had a higher rating for the banks than the other major agencies, so the small downgrade only “put them on the same level or slightly better than the others”. Furthermore, it put the banks on par with other major European banks. Noyer used the downgrade as an opportunity to express his confidence in the banks’ abilities to stay afloat, and said that there has been no talk of nationalizing the three banks, which are considered integral to the French economy, as they lend billions of euros to businesses and individuals. 

3) Retail. Positive news from Greece, France, Italy, and seemingly every other source of concern in Europe outweighed disappointing economic data in the U.S., where retail sales were completely flat in August, according to the Department of Commerce. Of course, the news was not unexpected, as an earlier report had consumer confidence declining to its lowest level in three years last month as Congress continued to battle over spending. However, the figures were still a disappointment, as August retail sales were expected to rise 0.2%. The report also downwardly revised its growth figure for July from 0.5% to 0.3%. Commerce Department data has spending for the first two months of the quarter significantly weaker than economists had predicted. Auto sales declined 0.3% last month despite efforts by Toyota (NYSE:TM) to get production back on track. Of course, high gas prices (NYSE:UGA) may have had something to do with that. Gasoline sales rose 0.3% in August, good news for Exxon (NYSE:XOM) and Shell (NYSE:RDS.A) but bad news for Ford (NYSE:F) and General Motors (NYSE:GM).

Thursday

1) Banks. The European Central Bank, the U.S. Federal Reserve, and three other major central banks all agreed to step in to boost dollar liquidity for European banks. The move comes amid signs that banks are pulling back on lending to other banks as the European Union struggles to resolve sovereign debt issues. The news gave shares of French, German, and Spanish banks a boost, and even spilled over to U.S. banks. Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC), JPMorgan (NYSE:JPM), Citigroup (NYSE:C), and Wells Fargo (NYSE:WFC) all shot higher today, as did shares of France’s Société Générale and Crédit Agricole, both of which had their credit ratings downgraded by Moody’s Investors Service on Wednesday.

2) Greece. A more positive outlook on Greece continued yesterday’s rally in global markets. Shortly before U.S. markets closed on Wednesday, Greece’s Prime Minister George Papandreou reiterated his government’s commitment to instituting the deficit reductionsrequired as part of its two bailouts. Both German Chancellor Angela Merkel and Papandreou assured the public that Greece leaving the 17-nation euro zone was not an option being considered, while Merkel and French President Nicolas Sarkozy said in a joint statement that, “Putting into place commitments of the [bailout] program is essential for the Greek economy to return to a path of lasting and balanced growth.” The news had European markets opening higher hours before U.S. markets would open, and kept them there throughout the day.

3) Economy. It seems good news from Europe outweighs bad economic news at home. Today the Department of Labor announced that consumer prices had climbed twice what economists had predicted in August, while initial jobless claims jumped last week to their highest level since June. The Federal Reserve Bank of New York’s report on manufacturing in the region contracted more than expected in September, while its general economic index dropped to its weakest reading since November 2010, indicating that companies in the region covered by the New York Fed’s manufacturing index are cutting back. The consumer-price report also showed that hourly earnings fell in August in their biggest one-month decline since July 2008, while the cost of energy, food, healthcare, and shelter all rose.

Friday

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Today’s markets were up because:

1) Consumer Sentiment. Although everything revolving around the economy is generally depressing, today the University of Michigan said Consumer Sentiment rallied. But don’t get too hot: today’s 57.8 reading is the 10th lowest reading since the inception on the series in 1798. Did they have the internet back then?

2) Europe. Although Eurozone leaders have not agreed on what to do with Greece or the other PIIGS, yesterday’s declaration of support has kept sellers offline … for the moment. Rather than worry about another Lehman moment, Wall Street has spent the past two days obsessed with a single rogue trader at UBS (NYSE:UBS) who has apparently guaranteed more layoffs at the bank after he lit $2 billion on fire. So much for the end to the jobless recovery. Don’t Miss:UBS: The Rogue Trader Just Added to the Western Unemployment Problem.

3) Tech. Did you hear about the one where Research in Motion (NASDAQ:RIMM) and Netflix (NASDAQ:NFLX) walk into a bar? It ends with the two former Wall Street darlings getting scraped off the floor after the bar lights come back on. Today, Research in Motion continued it’s plunge into the past as the Blackberry maker missed earnings AGAIN and the stock crashed 19%. On the streaming video side, Netflix shares dumped another 8.3% as the company is being strong headed about pricing. Someone should tell the C-Suite Netflix stock is down a mind-numbing ~50% in 2 months. Ka-Pow mo-mo traders! Other than these two dogs, tech was up 0.4% as companies such as Intel (NASDAQ:INTC) keep enjoying the idea of Microsoft’s (NASDAQ:MSFT) new Windows 8. 

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