15 Reasons Markets Continued to Rally on Greek Debt Resolution

Dow 12,681 S&P500 1,345 Nasdaq 2,858 Gold 1,603 Oil 99

The Dow (NYSE:DIA), S&P (NYSE:SPY) and Nasdaq (NASDAQ:QQQ) kicked back into bullish gear this week. Oil (NYSE:USO), Gold (NYSE:GLD), and Silver (NYSE:SLV) all found renewed interest from buyers as well.

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

Monday

1) Same old, same old. Lately, whenever stocks are down, it has something to do with the sovereign debt crisis, whether it’s Greece, Italy (NYSE:EWI), Ireland, or the U.S. And today it’s everybody. Lawmakers continue their game of chicken with just two weeks until a deal must be reached, while European leaders still haven’t decided on the role of private investors in a new Greek aid package and Italy’s bond yields continue to skyrocket. And last week’s bank stress tests failed to have much of an impact on fears as analysts are saying that they were too lenient and didn’t accurately test bank preparedness for Greek default.

2) Banks. Nothing pulls down the markets like the nation’s biggest banks (NYSE:KBE). When they’re having a bad day, everyone’s having a bad day, and Bank of America (NYSE:BAC) was leading sector losses, dropping 2.50%. Wells Fargo (NYSE:WFC), Citibank (NYSE:C), Deutsche Bank (NYSE:DB), and Morgan Stanley (NYSE:MS) were all down more than a percent. With all 10 S&P sectors down, financials were by far the worst, helping NYSE decliners outnumber gainers four-to-one. While declines might be explained by general wariness among investors worried about the economy, it might also have something to do with the looming uncertainty surrounding the Dodd-Frank Act and how strictly it will regulate banks and thus hinder profitability.  

3) The Murdoch Effect. The non-stop bad press machine that is News Corp. (NASDAQ:NWSA) has seen its shares drop off nearly 18% since news of its phone-hacking scandal broke. The stock has fallen 4.32% just today, and the bad juju seems to be wearing off on other media giants. Comcast (NASDAQ:CMCSA), CBS (NYSE:CBS), Disney (NYSE:DIS) are all well into the red today, and even Time Warner (NYSE:TWX) shares are down, despite having record-breaking box office giant — Harry Potter and the Deathly Hallows 2 – taking in revenue for the media conglomerate.

Tuesday

1) Bipartisan deficit-reduction plan. One of the two main factors hurting global markets has been the stand-off between Republicans and Democrats in Congress over a deficit-reduction plan required before a decision to raise the debt ceiling can be reached. Until now, we’ve been barreling toward the Treasury’s August 2 deadline with little progress, but this afternoon Obama pledged his support of abipartisan plan created by six Senators that would cut $3.7 trillion from the budget over the next 10 years, a number previously thought too ambitious. While the plan will still have to get at least some Republican approval in the House, which may not be easy, this could be the solution we’ve been waiting on for many months. Though markets started the day up, Obama’s news gave them quite an afternoon boost.

2) June housing starts. Today’s Department of Urban Housing and Development reportshowed that housing starts and building permits jumped in June, climbing well above Wall Street’s expectations and giving markets an early boost. Considering the poor housing market is one of the largest factors weighing down the economy, any growth in that sector comes as good news to all.

3) Industrials. Just yesterday, this was one of our “3 reasons markets were down”, but today industrials (NYSE:XLI) staged the Dow’s largest one-day rally of the year. The Dow gained 202 points and 27 of its 30 components were in the black. IBM (NYSE:IBM) led Dow gains, its share price rising 5.46% after the chip-maker reported an 8% year-over-year rise in quarterly income after yesterday’s closing bell. Coca-Cola (NYSE:KO) also made significant gains on the Dowafter reporting an EPS of $1.20 on revenue of $12.7 billion, well exceeding analysts’ expectations. Other Dow winners to watch include Caterpillar (NYSE:CAT), Disney (NYSE:DIS), Microsoft (NASDAQ:MSFT), and Pfizer (NYSE:PFE).

Wednesday

1) Debt debate. Investors weren’t so much wary of the markets as they were distracted, resulting in a rather ho-hum day of trading. While the Gang of Six plan introduced in the Senate yesterday is gaining steam, so is the Cut, Cap and Balance Act, which was pushed through the House by the Tea Party. The act was passed by the Republican majority in the House, but won’t make it through the Democrat-dominated Senate, while the Gang of Six plan, technically bipartisan, has a better chance of being passed by the Senate than the House. And in the meantime, we’re another day closer to the Treasury’s August 2 deadline and still no debt ceiling deal. 

2) Yesterday’s rally. After all three major indices posted huge gains, including the Dow (NYSE:DIA), which had its biggest one-day rally of the year on Tuesday, markets were bound to slump as investors fell back down to reality. Existing home sales slipped in June and traders took profits. Still, today’s minor losses only give back a fraction of yesterday’s gains. 

3) Apple. After releasing its earnings report yesterday, Apple’s (NASDAQ:AAPL) stock bounced, closing today up 2.67%, making it one of the biggest gainers on the Nasdaq. Unfortunately, one tech company’s good news is another’s bad. Competitors Microsoft (NASDAQ:MSFT), Hewlett-Packard (NYSE:HPQ), and Google (NASDAQ:GOOG) all closed out the day well into the red.

Thursday

1) Debt deal? Early this afternoon the New York Times reported that President Obama and House Speaker Boehner were nearing budget deal, giving the already positive markets an added boost. Despite the White House denying the veracity of the article, the New York Times is sticking to their source and the story, and so too are investors from the look of things. For the most part, the markets have held on to their afternoon gains.

2) European summit. Early reports coming out of the the summit in Brussels, where European leaders were meeting to discuss Greece’s second bailout, had it looking as though a plan of action would be agreed upon today. France (NYSE:EWQ) and Germany (NYSE:EWG) were supporting a plan that would allow Greece to go into selective default and allow for a bond buyback that would involve private investors in the relief effort, and for the first time the ECB, previously adamantly opposed to any plan involving Greek default, was on board with the plan. Not long after initial reports, the summit released a draft statement saying they’d agreed upon a program that would “fully cover the financing gap.” Opa!

3) Unemployment claims. It’s possible this morning’s good news had investors a bit too optimistic. While a plan to combat sovereign debt issues in Europe shouldn’t be taken for granted, the Labor Department reported today that jobless claims increased by 10,000 last week. On top of that, the dollar fell against the yen, the pound, and the euro, while U.S. bond yields and oil futures both rose. But it seems the possibility of two solutions for two of the biggest issues facing the global economy was just too great to be brought down by factors that are continually in flux.

Friday

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1) No budget deal. Democrats and Republicans, the House and the Senate, tax hikes vs. spending cuts…the debate continues as we head into another weekend with no debt deal. Yesterday the New York Times reported that we were close, but the White House quickly denied it. There are three main proposals in Congress: the Senate’s “Gang of Six” plan, which contains both large spending cuts and significant changes to the tax code; the Obama-Boehner plan, a bit more conservative but still not being embraced by the right; and the House’s “Cut, Cap and Balance” act that’s already been rejected by the Senate today, the majority being angered by the plan’s complete disregard of any tax reform whatsoever. It’s a game of chicken: Republicans aren’t ceding any ground, expecting the Democrats to flinch first as they barrel toward the August 2 deadline to raise the debt ceiling.

2) Greek bailout plan. Yesterday, European leaders held yet another summit to discuss plans for Greece’s bailout. But this time they came up with a plan of action. While the plan would allow for Greece to technically go into default, it seemed the best option for preventing the spread of Greece’s debt problems and for helping the Greece’s economy to recover. At issue for some time now has been the level of private sector involvement in the bailout. It was ultimately decided that as much as 50 billion euros would be raised by private sector buyers of Greek bonds. The Greece news boosted global markets and the euro, but wasn’t enough to keep American markets up as we continue to face our own debt crisis.

3) Tech sector. The tech-heavy Nasdaq (NASDAQ:QQQ) was the only major index to show significant gains today, with chip makers (NYSE:SMH) Sandisk (SDSK) and Advanced Micro Devices (NYSE:AMDleading the semiconductor sector after reporting better-than-expected second-quarter earnings and raising their full-year revenue forecasts. Sandisk closed up 9.62% and AMD closed up 19.23%. Other tech firms rode the wave, including Micron (NASDAQ:MU), Microchip Technology (NASDAQ:MCHP), and Seagate (NASDAQ:STX), all gaining over 3%.

BONUS: General Electric (NYSE:GE) had a solid quarter but came in a little light on the revenue side. Get the full details in our General Electric Co. Earnings Cheat Sheet: Powering Ahead.

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