Sunday, May 13, 2012

U.S. Markets Fall For Second Week on Greece and Spain Concerns

U.S. stocks fell for a second week in a row, as a $2 billion trading loss by JP Morgan and concerns about the political uncertainty in Greece and the stability of Spanish banks pulled markets lower. On Friday, the S&P 500 fell 4.60 points or 0.34% to 1,353.39. The Dow dropped 34.44 points or 0.27% to 12,820.60. For the week, the S&P 500 lost 1.1%, while the Dow dropped 1.7%.

JP Morgan Loses $2 Billion in 6 Weeks

On Friday, shares of JP Morgan Chase & Co tumbled 9.3% after revealing that the bank had lost $2 billion in 6 weeks on hedging positions involving the CDS Index. Investors became concerned that other U.S. banks would be affected, sending the KBW bank index down 1.2%.

U.S. Consumer Sentiment Surprises

On Friday, the Thomson Reuters/University of Michigan's consumer confidence index for May improved to 77.8 from April's 76.4. It was higher than the 76.2 that economists expected, and was a 4-year high.

Spain Nationalizes Fourth Largest Bank

On Thursday, Spain injected $4.5 billion euros into its fourth largest bank, Bankia, to take a 45% stake. This caused investors to become concerned about the health of Spanish banks, and whether further bailouts are needed.

Greece Political Turmoil Troubles Markets

Alexis Tsipras enters Greek Presidential Palace. Source: Associated Press
On Tuesday, after Greece's largest political party failed to form a government, the responsibility to do so fell to Alexis Tsipras and his Syriza party, the radical leftist party that seeks to overturn Greece's bailout agreement with the EU and IMF. As a result, concerns about Greece either exiting the euro zone or backing out of its agreement with the EU and IMF sent the Dow 150 points lower in early trading. German and French markets fell by 2% and 3% respectively, while the Greek market tumbled by 4%, reaching its lowest level in 20 years. The euro fell below the US$1.30 level, reaching US$1.2988.

Looking Ahead to Next Week

As I correctly forecasted last Sunday, U.S. markets fell this week on increasing uncertainty in the euro zone, especially the political crisis in Greece. Investors will continue to focus on the situation in Greece in the coming week. If the parties are unable to form a government, and the public heads into another election, markets will likely fall on the continued uncertainty. However, if a government is formed without the radical leftist Syriza party, markets will likely see a upward bounce. Meanwhile, investors will also pay attention to the banking system in Spain. If no other banks face trouble following the nationalization of Bankia, it would provide a boost to markets.

No comments:

Post a Comment