Sunday, July 17, 2011

US markets rise on Google and JP Morgan earnings

US markets rose on Friday on better-than-expected earnings by Google and JP Morgan Chase. The S&P 500 rose 7.27 points or 0.56% to 1,316.14. The Dow rose 42.61 points or 0.34% to 12,479.73. For the week, the S&P 500 fell 2.1%, while the Dow dropped 1.4%. 

US debt negotiations continue

One of the main factors for the markets this week was the debt ceiling negotiations between Barack Obama and the Republicans. The two sides did not reach an agreement this week, causing uncertainty to remain in the markets. In fact, on Wednesday, Moody's placed the United States' “Aaa” rating under a negative outlook.

Bernanke raises hopes for QE3

On Wednesday, Ben Bernanke testified to Congress that the Federal Reserve was prepared for more stimulus if it was needed, which boosted the markets. However, on Thursday, Ben Bernanke stated that there were currently no plans to conduct further stimulus.

Euro zone troubles spread to Italy and Spain

On Monday, stock markets tumbled on concerns that the euro zone debt crisis was spreading to Italy. On Tuesday, Moody's downgraded its rating on Ireland 2 notches, from “Baa3” to “Ba1”. This means that Ireland now has a “junk” rating. Meanwhile, the yield of 10-year Spanish government bonds reached a record high of 6%, while Italian 10-year yields rose to 5.7%.

On Friday, the EBA announced the results of its stress test, which showed that 8 out of 90 European banks failed. The EBA found that a total of $2.5 billion euros was needed by the banks. Another 16 banks barely passed the stress test.

China growth provides relief

On Wednesday, China's 2nd quarter GDP growth was reported at 9.5%, better than economists expected. It provided relief to markets that were concerned that a slowdown in growth in China would decrease the demand of oil and commodities.

Looking ahead to next week

Investors will be focusing on earnings next week. Additional better-than-expected earnings could push markets higher. However, concerns about the euro zone debt crisis spreading to Italy and Spain could pull markets lower. Investors would be particularly concerned if the yield on Italian and Spanish government bonds continue to increase. Negotiations over the US debt ceiling will continue to affect markets. An agreement to raise the debt ceiling could provide markets with a relief rally. 

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