Sunday, May 22, 2011

US markets fall on Greece and Italy

US markets fell on Friday on a worsening situation in the euro zone. The S&P 500 fell 10.33 points or 0.77% to 1,333.27. The Dow dropped 93.28 points or 0.74% to 12,512.04 points. 

Markets were dragged down on Tuesday by HP's disappointing guidance, though stocks got a boost from LinkedIn's strong debut on Thursday after its IPO. For the week, the S&P 500 lost 0.3%, while to Dow fell 0.7%. 

Euro zone troubles aplenty

Greece was the focus of markets for much of this week. A “soft restructuring” was mentioned by European finance officials all week, which caused discomfort for investors. On Friday, Fitch downgraded Greek debt by 3 notches, to B+. The yield on 10-year Greek government debt rose to a staggering 17% on Friday, making some type of default look inevitable.

Greece was not the only euro zone country in trouble this week, as Italy was placed under a negative outlook by S&P on Friday. In addition, despite public protest being declared illegal in Spain ahead of elections, several thousand protestors gathered in a public square in the capital to protest austerity measures and the high unemployment rate. Unemployment in Spain is at 21.3%, which is the highest within the European Union.

Looking at the situations in Greece, Italy and Spain, it appears that the debt crisis is becoming more severe, in a situation eerily similar to May 2010. EU officials have repeatedly shown that they are unable to mitigate a crisis in a euro zone nation.

Gold soars

Benefiting from the euro zone crisis, gold had its biggest daily gain in 2 weeks on Friday. By late afternoon on Friday, spot gold gained 1.5% to $1,514.49/ounce.

Looking ahead to next week

Investors will continue to focus on events in the euro zone. A deteriorating situation next week would send markets lower. Investors will also be looking at US economic data that will be announced, including GDP, retail sales and unemployment. Since US economic data has been pointing to slow growth in recent weeks, data showing weak growth will likely continue to send markets lower. Of course, better than expected data would provide a boost to equities.

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