15 Reasons Markets Pulled Back While Gold Exploded Higher

Dow 12,479 S&P500 1,316 Nasdaq 2,789 Gold 1,592 Oil 97

The Dow (NYSE:DIA), S&P (NYSE:SPY) and Nasdaq (NASDAQ:QQQ) cooled off a bit this week. On the other hand, Oil (NYSE:USO) found a bid, Gold (NYSE:GLD) broke out to new all-time highs, and Silver (NYSE:SLV) followed.

A Deeper Look at Gold’s Drivers:  Dr. Ron Paul vs Ben Bernanke: Who Is The Real Winner?

Now, for the 15 reasons markets moved this week:

Monday

1) Italy. Italy (NYSE:EWI) is the latest Euro-Zone country in danger of being contaminated by Greece’s ongoing debt crisis. While it’s not in such dire straits as Portugal and Ireland, it is by far the largest economy in danger, and as a result Europe’s banking sector is significantly more exposed to Italian debt. Italy has the third highest level of government debt after the U.S. and Japan. See Why Investors Must Watch Italy Like Hawks.

2) Banks. Banks (NYSE:KBE) were the leading decliners on the Dow’s 30 components, with Bank of America (NYSE:BAC) shares down 3.27% and JPMorgan (NYSE:JPM) shares down 3.22%. The S&P 500 was also down, with a 3% selloff in financial stocks leading all 10 index subsectors lower. Financials (NYSE:XLF) were a big reason why the NYSE was down today, with decliners outnumbering gainers by more than 6 to 1.

3) Still hungover from Friday. Friday wasn’t a good day. The markets were way down after the Bureau of Labor Statistics released their monthly jobs report, showing that there was essentially no job growth in June and that unemployment had increased by 545,000 since March. News that May’s job growth was less than half of original assessments had Americans knocking back another shot. And that’s not the kind of thing you recover from quickly. The U.S. economy is not at all improving at the rate Americans had hoped, and it doesn’t help that we still haven’t heard much news from Congress or the White House to lead us to believe a debt ceiling decision is near at hand.

Tuesday

1) The Fed. Might as well start with the good news. The markets actually experienced a bounce today after minutes from the Fed’s June meeting showed they might be considering another economic stimulus if unemployment figures don’t improve. Unfortunately the rest of the day included mostly bad news for investors, including increasing oil prices, but without that bounce, today’s markets could have been worse.

2) Tech. Microchip Technology (NASDAQ:MCHP) and Novellus (NASDAQ:NVLS) shares both showed double-digit losses today, bringing down the sector. The Technology ETF (NYSE:XLK) is down 0.88% today on poor earnings reports for chip and semiconductor stocks.

3) Sovereign debt crisis spreading like a Greece fire. Terrible pun aside, Greece’s debt crisis continues to contaminate other Euro-Zone countries. Today, Portuguese and Italian bonds reached some record high yields. Ireland and Portugal have been in trouble for some time, and have already received similar aid packages to that of Greece, but Italy (NYSE:EWI) and Spain (NYSE:EWP) are increasingly in danger, and both have significantly larger economies that will increase the scale of their debt problems and are likely to put even more European countries at risk. Not helping matters was Moody’s (NYSE:MCO) downgrade of Irish bank debt to junk. I wonder where we’d be now if ratings services stopped making things worse?

Wednesday

1) China’s GDP. Investors in the western world awoke to news that the world’s second-largest economy grew at an annually adjusted rate of 9.5% between April and June. China’s (NYSE:FXI) size and exploding consumption make it a huge player in the global market. Just as an example, strong demand in China for luxury vehicles has helped prop up sales for automakers like BMW (ETR:BMW) and Volkswagen (PINK:VLKAY), both of which expect to make record sales in 2011. Today’s numbers also helped propel rare earth stocks Molycorp (NYSE:MCP), Avalon Rare Metals (AMEX:AVL), Thompson Creek Metals (NYSE:TC), General Moly Inc. (AMEX:GMO), PolyMet Mining corp. (AMEX:PLM), and Freeport-McMoRan Copper & Gold Inc.(NYSE:FCX).

2) QE3. Markets have been down for the last three sessions as the public keeps getting hammered by reports of slowing economic growth. But today’s markets took a turn when the Fed released a report saying that they expect the pace of the economic recovery to pick up in the second half of the year, and if it doesn’t, they haven’t ruled out a third round of quantitative easing, should it become necessary. The country breathed a collective sigh of relief, which was followed by the ka-CHING of a cash register.

3) Congress gets its act together. As I write, President Obama is currently meeting with Democratic and Republican leaders of Congress to discuss raising the debt ceiling. Late Tuesday, Senate Republican Mitch McConnell suggested a plan that would allow Obama to raise the debt ceiling on his own. Even more astonishing than the proposal was that it had bi-partisan backing, with Democrat and Senate Majority Leader Harry Reid agreeing that the deal could help solve the current impasse in deficit-reduction discussions. Can I get an Amen?

Thursday

1) No QE3? While Bernanke seemed to hint at the possibility of a third round of quantitative easing when addressing Congress yesterday, now he’s backing off, saying that the issue is “more complex” than before QE2, and that the Fed is “not prepared at this point to take further action.”

2) Techs, Transports, and Cyclicals. While the Dow and S&P hovered close yesterday’s closing figures, the Nasdaq dropped off more than 1%, with transports down 1.3% and industrials like Alcoa (NYSE:AA), Dupont (NYSE:DD), and 3M (NYSE:MMM) some of the day’s worst performers. The cyclical and leading-edge sectors also did poorly today. S&P industrials were down 0.7%, as was the S&P’s tech sector. The S&P Small-Cap 600 was down 1.2%.

3) Downgrade watch. Wednesday evening, Moody’s (NYSE:MCO) put the U.S. on the watchlist for a possible credit rating downgrade, citing the “rising possibility” that Congress won’t reach a deal to raise the debt ceiling on time, triggering a selective default on government obligations. After American investors have watched European stocks and American stocks tank every time a relatively small Euro-Zone country gets downgraded by a ratings service, the possibility that government of the country with the world’s largest economy could be downgraded definitely has people scared. Hopefully after Obama’s meetings with congressional leaders today and tomorrow, we’ll be privy to some brighter news and see the markets rally like they did last week.

Friday

1) M&A activity. With so much negative economic news — declining consumer sentiment, Standard & Poor’s (NYSE:MHP) putting the U.S. on downgrade watch, and the continuing impasse of debt ceiling talks — markets could have easily been down again today. But in a rare feat, they were bolstered by individual sectors and stocks. Clorox (NYSE:CLX) and Petrohawk (NYSE:HK) deals were responsible for huge NYSE gains.

2) Euro-bank stress tests. The results of the stress tests for 90 European banks had investors around the world on the edge of their seats, but ultimately the results of the test held no real surprises and could have definitely been worse. Only 8 of the banks failed, though another 16 narrowly passed. The eight failing banks had a combined shortfall of 2.5 billion euros in capital under the European Banking Authority’s worst-case economic scenario. Last year’s 7 failing banks had a combined shortfall of 3.5 billion euros. Not only did this year’s failing banks fare better than last year’s, but there were significantly fewer than expected. Estimates had the number near 20. So while the results of the stress test might not be considered good news, they most certainly aren’t bad, especially considering the failing banks are right where one would expect them to be: 5 in Spain, 2 in Greece, and 1 in Austria.

3) Google. The so-much-more-than-a-search-engine’s new social networking tool, Google+, has already gained over 10 million users in just 2 weeks and is only one of many reasons why Google’s latest earnings report throttled the company’s pared down expectations. (See: “Here’s Why Google+ Means Serious Money“) Net income rose to $2.5 billion versus $1.84 billion in the same quarter a year earlier, a 36.1% increase. The success of Android, which accounted for 40% of smartphone sales this year is another reason for the great earnings report that pushed up the company’s stock 13.34%, trading on a volume of 12.27 million today where the 30-day average is only 3.01%. Google’s good fortune alone comprised a good share of the Nasdaq’s gains today in an otherwise shaky day of trading.

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