15 Reasons Markets were Mixed After Weak Unemployment and a Lawsuit from Fannie Mae and Freddie Mac

Dow 11,240 S&P500 1,173 Nasdaq 2,480 Gold 1,881 Oil 86

The Dow (NYSE:DIA) and S&P (NYSE:SPY) were down slightly for the week, but the Nasdaq (NASDAQ:QQQ) held up before the Labor Day weekend. Oil (NYSE:USO) added $1. Gold (NYSE:GLD) continued its run into record territory.

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

Monday

1) Greek banks. News that Alpha Bank would acquire Eurobank had European stocks rallying, including and especially those of other Greek banks, as the announced merger boosted hopes that European banks would consolidate in order to help them weather the debt crisis. European Union and Greek officials have been pressing lenders to form stronger groups for many months now.

2) Consumer spending. While the news has already been somewhat dampened by the fact that consumer confidence declined sharply in August, consumer spending in July was reported today by the Commerce Department as having risen 0.8%, its fastest rate since February, after declining in June. The recovery of the auto sales played a large part in heightened spending, as did the cost of air conditioning in a July that exceeded average temperature levels in most states. Given that consumer spending accounts for roughly 70% of the U.S. economy, news that it grew so rapidly in July, a month when unemployment declined, paints a good picture of economic growth, though that growth may have been temporarily thwarted in late July and early August as lawmakers fought over a debt deal, S&P downgraded the U.S., and markets experienced a lengthy and drastic sell-off. 

3) Capital goods. Some of today’s best performers were capital goods stocks, with many outperforming the Dow, the S&P, and the Nasdaq. Leading gains were Dresser-Rand (NYSE:DRC) and USG Corp. (NYSE:USG), climbing roughly 13% each, while heavy-hitters Deere & Co. (NYSE:DE), Caterpillar (NYSE:CAT), and Cummins (NYSE:CMI) all made gains of over 3% during regular trading. Overall, the capital goods sector climbed 3.40%, making it the best-performing sector of the day.

Tuesday

1) Consumer confidence. Markets were headed down this morning after the Conference Board announced that itsconsumer-confidence index declined to its lowest level since April 2009 in its sixth-largest one-month decline in the last 21 years. The news follows Friday’s release of the Thomson Reuters/University of Michigan consumer-confidence index, which had confidence declining in August to its lowest level since November 2008. However, while markets started rocky, they eventually turned upward on more positive news and closed the day with modest gains.

2) Fed minutes. Stocks climbed to late-afternoon highs after the Fed released minutes from its latest policy meeting, in which they discussed range of economic stimulus measures, including another round of quantitative easing. The minutes also showed that Fed officials pushed for a longer meeting in September to further discuss the measures, echoing Chairman Ben Bernanke’s announcement Friday that the one-day meeting would be stretched to two days when he spoke from an annual economic conference in Jackson Hole, Wyoming. While the fact that the Fed committee is considering another stimulus is evidence the economy is doing poorly, it gives some comfort to know the Fed may soon take actions to spur growth.

3) Home prices. S&P/Case-Shiller released their quarterly Home Price Index this morning, which covers April 2011 through June 2011, and shows significant growth in the second quarter, after home prices in the real estate market (NYSE:IYR) declined steeply in the first quarter. While housing prices have recovered from their first-quarter low, they remain below second-quarter prices in 2010. But the fact of their having climbed for three straight months to finish the quarter up 3.6% above where they finished the first quarter shows that the housing market was slowly but steadily recovering. The news had housing-related stocks climbing today. Beazer Homes USA (NYSE:BZH) was the capital goods sector’s leading gainer, climbing 11.17%, while BlueLinx Holdings Inc. (NYSE:BXC) was the second-best sector performer today, as the building products distributor’s stock climbed 10.26%. Other stocks getting a boost from the news include Hovnanian Enterprises (NYSE:HOV), KB Home (NYSE:KBH), M.D.C. Holdings (NYSE:MDC), and NVR Inc. (NYSE:NVR).

BONUS: 8 Retail Stocks Flying Higher After Hurricane Irene.

Wednesday

1) Germany. German Chancellor Angela Merkel’s Cabinet ratified measures today to combat the euro-area debt crisis, with senior members of Merkel’s Christian Democrats saying they are now confident they will be able to secure a coalition majority for the proposed changes to the European rescue fund. Just two days ago, Merkel didn’t have enough coalition votes in the Bundestag to ensure the measure would be passed. Without the plan to expand the authority of the European Financial Stability Facility and increase Germany’s (NYSE:EWG) financial contribution to the fund, the German government would be risking the collapse of individual countries, the region’s common currency, and ultimately the European economy as a whole.

2) Justice Department. As the U.S. Department of Justice filed suit to block AT&T’s (NYSE:T) $39 billion acquisition of T-Mobile, direct competitor Sprint (NYSE:S) got a boost while Dish Network (NASDAQ:DISH) was also trading up, maybe because AT&T has a partnership with its biggest competition, DirecTV (NASDAQ:DTV), though the fact that Dish announced plans to build a 4G network might have been a contributing factor. Meanwhile, AT&T shares plummeted, as did shares of Deutsche Telekom, of which T-Mobile remains a subsidiary. Oddly Verizon (NYSE:VZ) was also trading down, falling nearly 0.5% today. While telecommunications and technology stocks were the worst performers today after the news, the sector still posted slight gains for the day, with the 3 major indices all closing up, though the tech-heavy Nasdaq held out until the last few minutes of trading.

3) Financials. After taking a dip Tuesday on news that the FDIC opposed its $8.5 billion mortgage-bond settlement with investors, Bank of America (NYSE:BAC) shares rallied today, climbing 1.48% and leading the financial sector to outperform the markets and finish the last day of August as the strongest sector. All of the nation’s major banks were up, including JPMorgan (NYSE:JPM), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), and Barclays (NYSE:BCS), which climbed over 3%.

Thursday

1) Manufacturing. With disappointing August manufacturing reports coming in today for Asia, Europe, and the U.S., it’s no wonder the markets closed down. While manufacturingcontinued to grow in the U.S., it slowed to a snail’s pace, while manufacturing contracted in Europe and the U.K. (NYSE:EWU). Even Germany (NYSE:EWG), the euro zone’s strongest economy and the first to pull itself out of the recession reported a decline in manufacturing activity. The same went for Asia, where manufacturing contracted in South Korea and Taiwan, while China’s (NYSE:FXI) purchasing managers index declined to a level similar to that of the U.S.

2) Jobless claims. The U.S. Department of Labor’s weekly report on unemployment insurance claims released this morning showed that initial claims fell to 409,000 in the week ending August 27, from an upwardly revised figure of 421,000 in the previous week. While the rate showed some improvement, the 4-week moving average, which is a more accurate indicator of employment trends, increased by 1,750 to 410,250 last week. New jobless claims have remained above 400,000 each week for 19 consecutive weeks now. If jobless claims fall below 400,000, it indicates that jobs are being created, while anything above that number indicates that jobs are being eliminated from the economy, and that the rate of unemployment may rise. 

3) Retail. Though many retail (NYSE:XRT) stocks reported better-than-expected sales for the month of August, there is still a level of uncertainty, evidenced by low consumer confidence readings earlier this week, preventing them from bouncing back. Consumers remain wary of spending, and those who are spending tend to look for deals and buy products that have been marked down, which hurts retailers’ profit margins. BJ’s Wholesale (NYSE:BJ) reported an 11.5% increase in sales last month, beating analysts’ expectations of a 7.8% increase, and yet the stock finished the day flat. The Buckle Inc. (NYSE:BKE), Target (NYSE:TGT), Limited Brands (NYSE:LTD), and Nordstrom (NYSE:JWN) all closed the day down despite reporting better-than-expected sales for August. Still, some stocks managed to end the day higher, though fewer than one would expect given August sale figures, including Macy’s (NYSE:M) and Costco (NASDAQ:COST).

Friday

1) Unemployment. According to this morning’s Bureau of Labor Statistics report, nonfarm payroll employment was unchanged in August, and the unemployment rate held still at 9.1%, with 14.0 million unemployed in the U.S. Also, the change in total nonfarm payroll unemployment in July was downwardly revised from +117,000 to +85,000. While sectors from healthcare to mining to computer systems design all added jobs, their gains only helped to offset losses in other sectors, including local government jobs.

2) Greece. Talks between Greek officials and international inspectors over Greece’s next tranche of aid unexpectedly came to a halt Friday, after the two groups disagreed over why and by how much Greece’s deficit-reduction programs, a condition of the aid package, had fallen behind schedule. The International Monetary Fund, one of the main contributors to Greece’s aid package, initially said it planned to wrap up discussions by September 5, but now Greece’s lenders may be reconsidering issuing 8 billion euros of aid this month, as Greece hasn’t lived up to its side of the agreement in issuing significant spending cuts. While Greece is blaming its economy, which is expected to shrink by 5% this year, its lenders say the economy is only responsible for a quarter of its budget’s deviation. Greece’s deficit in 2011 is expected to be 8.6%, though Greece estimates it at 8.1%, well above the 7.6% target. 

3) Banks. Over a dozen major U.S. banks (NYSE:KBE) are expected to be named in aFederal Housing Finance Agency lawsuit arguing that they misrepresented the quality of mortgage securities they packaged and sold leading up to the housing market collapse. The FHFA, which oversees mortgage firms Fannie Mae and Freddie Mac, is expected to seek billions of dollars in compensation, according to a published report. Bank of America (NYSE:BAC), Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), and Deutsche Bank AG (NYSE:DB) are among the banks said to be targeted by the suit, and as such, have been leading today’s market sell-off. BAC shares are down 8.53%, GS is down 5.47%, JPM is down 4.66%, and DB is down 6.42%.

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