Top 3 Reasons Markets Erased the Year’s Gains

Markets closed down on Wall Street today: Dow -4.31, S&P -4.79%, Nasdaq -5.07%, Oil -5.95%, Gold -0.80%.

On the commodities front, Oil (NYSE:USO) fell to $86.46. Precious metals also fell, with Gold (NYSE:GLD) down slightly to $1,653.00 an ounce and Silver (NYSE:SLV) down 7.18% to $38.76 an ounce.

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Today’s markets were down because:

1) Japan and Europe. Both Japan and Switzerland made moves to tame their skyrocketing currencies, which devalued the safe-havens against a host of other currencies, including the U.S. dollar. Then the European Central Bank decided to re-enter the bond market and started buying up bonds, but not the Spanish and Italian bonds that are at the center of the current sovereign debt crisis. Investors became acutely aware today that, while the U.S. sovereign debt crisis is over, it’s still very real in Europe. Furthermore, many once-thriving economies like Japan are now in the depths of a recession. Even Chinese markets closed down Thursday.

2) Unemployment. Initial jobless claims last week fell slightly to 400,000, but have been unable to break lower in 17 consecutive weeks. For the unemployment rate to decrease and the country to enjoy sustainable job growth, initial jobless claims need to stay below 400,000 for a significant amount of time. The slowing improvement in the job market has Americans worried about the state of the economy, and now with the debt deal, unemployment benefits could be at risk. Americans are still awaiting Friday’s official jobs report to see how many jobs the economy created last month, and most accounts have the rate of growth just enough to keep the unemployment rate steady at 9.2%, but the report could disappoint and push the unemployment rate still higher.

3) Capital goods. With the Pentagon facing huge budget cuts in 2012, the part of the capital goods sector catering to high profile defense contracts could be looking at billions of dollars in lost revenue. All of the major aerospace and defense stocks (NYSE:PPA) have been falling off today, including Honeywell (NYSE:HON), Boeing (NYSE:BA), Lockheed Martin (NYSE:LMT), and United Technologies Corp. (NYSE:UTX).

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