Weekly Market Recap: Markets Continue Rise, Bank Stocks Still Lagging

DJIA 12,184 S&P500 1,255 Nasdaq 2,646 Gold 1,710 Oil 99

The Nasdaq (NASDAQ:QQQ), S&P 500 (NYSEARCA:SPY), and Dow Jones Industrial Average (NYSEARCA:DIA) added more gains this week as a Eurozone solution — no matter how weak — seems like a foregone conclusion. On the commodities front, Oil (NYSEARCA:USO) lost $1 and Gold (NYSEARCA:GLD) had a small loss as investors wait to see how much currency needs to be printed.

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

Markets closed up on Wall Street Monday: Dow +0.65%, S&P+1.03%, Nasdaq +1.10%, Oil -0.01%, Gold -1.52%.

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Monday’s markets were up because:

1) France and Germany. Leaders of the euro zone’s two largest economies hammered out a joint proposal today for a more economically unified Europe days ahead of a crucial summit. German Chancellor Angela Merkel and French President Nicolas Sarkozy will propose a new treaty that demands closer economic integration and tougher policing of fiscal rules when they meet with other European Union leaders at a summit in Brussels on Friday. Speaking after the meeting, Sarkozy said the “Franco-German agreement is very complete” and will be “written up in a letter and presented to [European Council President] Herman Van Rompuy on Wednesday.”

2) Standard & Poor’s. The indexes were all up around 1.5% earlier in the day on news that Merkel and Sarkozy had come to a quick and decisive agreement on creating a tighter fiscal union, but pulled back in the mid-afternoon after a Financial Times report suggested that Standard & Poor’s will put Germany, France, the Netherlands, Austria, Finland and Luxembourg — all of the euro zone’s AAA-rated members — on “creditwatch negative” later Monday. That would mean the countries have a 50% chance of being downgraded within the next 90 days.

3) Banks. Bank stocks were leading the broad advance this morning, and remained the market’s best performers through close. JPMorgan (NYSE:JPM) and Bank of America (NYSE:BAC) posted the Dow’s biggest gains, while shares of Citigroup (NYSE:C), Morgan Stanley (NYSE:MS), and Goldman Sachs (NYSE:GS) all tacked on from 2 to 7 percent by closing bell.

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Markets closed mixed on Wall Street Tuesday: Dow +0.43%, S&P+0.11%, Nasdaq -0.23%, Oil 0.00%, Gold -0.14%.

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Tuesday’s markets were mixed because:

1) Bazooka. Stocks rallied through most of the day on an unconfirmed report that European leaders are working on a plan to combine various rescue funds into a so-called big “bazooka”. The Financial Times said European officials are working on a last-minute proposal to combine the resources of the existing bailout fund with those of the new one to debut next year. The newspaper also said the funds could be supported in some way by the International Monetary Fund. Countries like Germany might be more willing to support such measures if they are successful in creating a tighter fiscal union that holds sovereign governments accountable to a higher authority on budgetary matters.

2) Standard & Poor’s. A rumor emerged in the last hours of trading yesterday that Standard & Poor’s would soon be putting all of the euro zone on watch for a credit downgrade. The news interrupted a market rally that had the major indices up more than 1.5%. The rumor was confirmed later in the evening, when the credit rating agency said it had placed 15 of the 17 euro nations — including Germany, France, and four other AAA-rated countries — on review for a possible downgrade. Though stocks rallied on the Financial Times report, the “bazooka effect” was ultimately tempered by concern that the downgrade of a euro-zone country would lead to the European Financial Stability Facility being downgraded, which would cause the rescue fund’s interest costs to rise, and therefore inhibit its ability to support the struggling sovereigns. 

3) Stocks. The conglomerates sector was the best performer today, buoyed by 3M (NYSE:MMM), which announced it expected 2012 sales to grow 2% to 6% year-over-year in 2012, with EPS rising to $6.25 to $6.50. Shares were up 1.48% to $82.13 at close. Darden Restaurants (NYSE:DRI) wasn’t quite so lucky — the stock plunged 11% after the company, which operates Red Lobster and Olive Garden, issued a gloomy outlook for the quarter and fiscal year.

BONUS: EU Authority Leading Investigation Into Ratings Agencies.

Markets closed mixed on Wall Street Wednesday: Dow +0.38%, S&P+0.20%, Nasdaq -0.o1%, Oil -0.75%, Gold +0.80%.

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Wednesday’s markets were mixed because:

1) S&P. Trading was thin today as markets struggled to recover after Standard & Poor’s decision to put 15 euro nations on watch for a possible credit downgrade on Monday. News was sparse today, and though European leaders and policymakers seem to be moving toward an agreement on how to effectively shore up finances, enforce strict budgetary guidelines, and boost banks’ liquidity, investors are understandably skeptical, given that leaders have agreed upon numerous “comprehensive” packages this year that quickly fizzled. Germany’s downbeat assessment of prospects for an agreement didn’t help matters. Investors will likely remain cautious until the summit in Brussels at the end of the week. 

2) Banks. Financials rallied despite Standard & Poor’s placing some of the largest rated banking groups in the euro zone on creditwatch with negative implications, adding that it could also cut credit ratings for several U.S. regional banks, including US Bancorp (NYSE:USB), PNC Financial Services (NYSE:PNC), and BB&T (NYSE:BBT). Among the major U.S. banks, Citigroup (NYSE:C) was the worst performer, just tacking on 0.27% after announcing that it would cut almost 4,500 jobs worldwide — almost 2 percent of its workforce. Goldman Sachs (NYSE:GS), Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), JPMorgan (NYSE:JPM), and Morgan Stanley (NYSE:MS) all climbed 2% to 5%. 

3) Energy. The energy sector was the biggest drag on the market today as oil dipped below $100 a barrel mid-day after a bearish weekly oil inventory report. Peabody Energy (NYSE:BTU) and Halliburton (NYSE:HAL) were the sector’s worst performers. Still, many other oil stocks joined a late rally, with Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM) clawing their way to modest gains after an otherwise relatively flat day of trading.

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Markets closed down on Wall Street Thursday: Dow -1.63%, S&P-2.11%, Nasdaq -1.99%, Oil -2.48%, Gold -1.86%.

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Thursday’s markets were down because:

1) ECB. Though ensuring European banks would have unlimited access to cheap cash with new three-year loans, European Central Bank President Mario Draghi frightened investors when he refused to commit to broad assistance to troubled euro countries. The news should have come as no surprise, given that Draghi has continually emphasized the importance of sovereign governments taking their steps to restore confidence and tackle the debt crisis, but many were still hoping the ECB would expand its bond-purchasing program.

2) Jobless. The number of people filing for initial unemployment benefits fell to a 9-month low of 381,000 last week. The news initially boosted markets, but as has been the case for months now, Europe’s news soon overshadowed positive economic data in the U.S., where wholesale inventories for the month of October also did better than expected, according to a report today, coming in at 1.6 percent instead of the projected 0.2 percent increase.

3) Banks. Financials were unsurprisingly the hardest hit by the ECB’s news, with all major U.S. banks declining. Wells Fargo (NYSE:WFC), Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC), and JPMorgan (NYSE:JPM) were all down 3 to 5 percent today, while Citigroup (NYSE:C) and Morgan Stanley (NYSE:MS) did even worse, closing the day down 6.97 percent and 8.42 percent, respectively.

BONUS: Congress Debates Payroll Tax Cut Extension.

Markets closed up on Wall Street Friday: Dow +1.55%, S&P+1.69%, Nasdaq +1.94%, Oil +1.30%, Gold +0.09%.

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Friday’s markets were up because:

1) EU. Despite opposition from the U.K., twenty-three of the twenty-seven countries in the European Union formally agreed to run only minimal budget deficits in the future and granted the European Court of Justice the right to strike down national laws that don’t enforce such discipline. Though the details of the agreement effected in a summit in Brussels are otherwise scarce, leaders announced that they had agreed to cap the European Stability Mechanism at 500 billion euros, and that EU nations would provide up to 200 billion euros in loans to the International Monetary Fund.

2) U.S. economic data. The U.S. trade deficit narrowed in October for the fourth month in a row, to $43.5 billion from a revised $44.2 billion the month before, despite record imports from China. Separately, an early reading on consumer sentiment in December topped expectations, though with a reading of 67.7, it still came in below the 69.3 average for the last five recessions, and is about 21 percent below the average reading since the University of Michigan began tracking such information with its Consumer Sentiment Index in 1978.

3) Banks. Financials led the day’s rally. JPMorgan (NYSE:JPM) gained 2.98%, Bank of America (NYSE:BAC) added 2.15%, Morgan Stanley (NYSE:MS) climbed 3.15%, Goldman Sachs (NYSE:GS) jumped 1.53%, Citigroup (NYSE:C) climbed 3.68%, and Wells Fargo (NYSE:WFC) tacked on 2.75%.

BONUS: U.S. Household Wealth Logs Biggest Quarterly Drop Since Lehman’s Collapse.