DJIA 11,866 S&P500 1,219 Nasdaq 2,555 Gold 1,597 Oil 93
The S&P 500 (NYSEARCA:SPY), Nasdaq (NASDAQ:QQQ), and Dow Jones Industrial Average (NYSEARCA:DIA) all took a bath this week as investors didn’t get the hard EU solution they wanted. On the commodities front, Oil (NYSEARCA:USO) lost $6 and Gold (NYSEARCA:GLD) cracked below important psychological support levels.
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Now, for our analysis of the 15 reasons markets moved this week:
1) Europe. While news on Friday that European leaders had reached deal for a new intergovernmental treaty to create fiscal unity and resolve the long-running debt crisis fueled a market rally, the euphoria has died down as leaders of the countries involved in the deal head home where they will have to convince their politicians to pass measures that will involve forfeiting a significant amount of fiscal sovereignty. Moody’s added to the fray when it it warned of a downgrade risk for European nations, echoing a move by Standard & Poor’s last week.
2) Banks. Financial stocks were again in focus as the biggest reactors to European debt concerns. Shares of Citigroup (NYSE:C), Bank of America (NYSE:BAC), Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), and JPMorgan (NYSE:JPM) were all down between 3 and 7 percent on Monday.
3) Intel. A worldwide hard drive shortage caused by massive floods in Thailand had Intel warning that it will badly miss its sales forecast for the current quarter. Shares of Intel dropped more than 4 percent on the news, making the chipmaker one of the Dow’s worst-performing stocks today.
1) Fed. Markets reversed an early rally after the Federal Reserve kept rates unchanged, warning that “strains in global financial markets continue to pose significant downside risks to the economic outlook” in minutes from a meeting of the Federal Open Market Committee. Though it said the economy is expanding moderately, with some improvement in labor conditions, the Fed’s confirmation that Europe remains a real threat to U.S. economic growth, and prediction that the “unemployment rate will decline only gradually,” had investors disheartened.
2) Germany. Stocks first pulled back today after a Dow Jones report said that German Chancellor Angela Merkel had rejected suggestions to raise the funding limit for the European Stability Mechanism, which goes into effect next year and may run alongside the European Financial Stability Facility, which it is ultimately intended to replace. Though the FOMC minutes might have had a more dramatic impact on the major U.S. indices, Germany’s news didn’t help, and was the first to rock markets that had been trading up thanks to an initial void of bad news out of Europe.
3) Retail. Retail sales for the month of November rose 0.2 percent, well below what was expected, according to the U.S. Commerce Department. However, the disappointing report had little impact. Sales were expected to have increased by 0.6 percent, following a 0.5 percent advance in October that was revised to 0.6 percent in today’s report. Instead, the November gain was the smallest since June, despite Thanksgiving weekend sales figures that topped estimates and toppled previous records. Shares of electronics retailer Best Buy (NYSE:BBY) plummeted 15.46 percent after the company reported earnings that fell far short of forecasts.
1) Dollar. The dollar strengthened today as the euro declined to an 11-month low. The stronger dollar dragged down commodities priced in the U.S. currency. The drop in commodities hit shares of companies in the energy and materials sectors, including Caterpillar (NYSE:CAT), Alcoa (NYSE:AA), and Exxon Mobil (NYSE:XOM), taking a toll on the Dow. OPEC’s decision to increase its production cap also took a toll on oil prices, which in turn hit companies like Chevron Corp. (NYSE:CVX) and BP (NYSE:BP).
2) Euro. Investors remained nervous today about the euro-zone debt crisis and increasingly tight credit conditions for banks across Europe, pushing the euro down below $1.30. While most European Union leaders have agreed in theory to form a fiscal compact aimed at strengthening budgetary discipline, investors are worried that implementing the agreement could prove legally and politically difficult, as EU members ratifying the treaty would be essentially signing over their fiscal sovereignty.
3) Debt. U.S. stocks joined a global slump as the cost of insuring against default on European sovereign debt approached record highs. Italy had to pay the most in 14 years to sell five-year bonds in an auction today. The yield on Ireland’s 10-year bonds rose to 8.77 percent today, up from 8.06 percent a month earlier. Spain’s 10-year bond yielded 5.69 percent and the yield on Germany’s benchmark 10-year bund was 1.92 percent.
Today’s markets were up because:
1) Jobs. The number of people filing for initial unemployment benefits fell to 366,000 last week, the Labor Department reported this morning — the lowest level since May 2008, and well below analysts’ estimates. The 19,000 decline in new claims matches a 19,000 decline from the week earlier, giving markets hope that persistently high unemployment might finally be on its way out.
2) Europe. Despite a host of positive economic news in the U.S. — mortgage rates sank to record lows, manufacturing activity jumped — the lingering threat of Europe’s debt crisis tempered sentiment. News that Ben Bernanke told Senate Republicans yesterday that the Federal Reserve had no plans to send additional aid to European banks only had investors fretting more about a situation already fraught with peril. And though a strong bond auction provided some relief for Spain today, it did little to calm larger fears for the future of the European Union.
3) Fashion. Michael Kors (NYSE:KORS) stock debuted on the New York Stock Exchange today, after the fashion brand raised $944 million in its initial public offering on Wednesday evening. The IPO was the largest ever for a U.S. fashion company. Michael Kors joined 10 other companies in going public this week, making for the most active IPO week in more than four years. Other hot IPOs the past week include Zynga (NASDAQ:ZNGA) and Jive Software (NASDAQ:JIVE).
Today’s markets were mixed because:
1) Fitch. A midday sell-off came after Fitch Ratings put seven European countries on creditwatch negative, citing a higher probability that it could downgrade Belgium, Spain, Slovenia, Italy, Ireland, or Cyprus in the next few months. Markets forfeited a good share of their earlier gains, with the Nasdaq and S&P 500 falling off session highs upwards of 1%. Still, investors breathed a sigh of relief that France was not on that list, and the euro zone’s second-largest economy would at least for now retain its pristine AAA rating.
2) Banks. After markets closed on Thursday, Fitch downgraded seven major banks, including Bank of America (NYSE:BAC), Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS), Barclays (NYSE:BCS), Societe Generale, BNP Paribas, Deutsche Bank (NYSE:DB), and Credit Suisse (NYSE:CS). While the financial sector was mixed, all of the downgraded lenders were trading in the red today.
3) Zynga. Shares of Zynga (NASDAQ:ZNGA) rose 10% in their public debut on the Nasdaq today before falling to close the day down 5% off its initial share price of $10. The less-than-stellar debut of the biggest tech IPO since Google (NASDAQ:GOOG) raised $1.9 billion in 2004 does not bode well for markets, and joints.