U.S. Markets Post Biggest Gains of 2012 on Hopes of Spain Bailout

Tweet

U.S. markets rose on Friday, as investors expected Spain to ask the euro zone for a bailout on Saturday for its troubled banking system. On Friday, the S&P 500 climbed 10.67 points or 0.81% to 1,325.66. Meanwhile, the Dow gained 93.24 points or 0.75% to 12,554.20. For the week, the S&P 500 jumped 3.7%, while the Dow gained 3.6%.

One week after the S&P 500 lost 6.3% in May and dropped below its 200-day moving average, the index posted its strongest weekly gains so far in 2012.

Euro Zone Agrees to Bailout For Spain

Today, the 17-member euro zone has agreed to a 100 billion euro bailout for Spain's banks. This was larger than the amount that the market expected, and followed a 2.5 hour telephone meeting among euro zone finance ministers. On Friday, a report by the IMF had indicated that Spain needed 40 billion euros to inject into its banks. The bailout is likely to erase the market's concerns about Spain, at least in the short term.

Spain Troubles World Markets

Prior to Sunday's bailout announcement, the situation in Spain dogged U.S. markets for the entire week. On Friday, Fitch downgraded Spain 3 by botches, from A to BBB. The agency also gave Spain a negative outlook, meaning further downgrades are likely. In addition, Moody's warned that Spain and other euro zone nations were at risk of a downgrade. On Tuesday, following a meeting of G7 finance ministers, Spain indicated for the first time that it was asking for assistance from the euro zone.

China Cuts Interest Rate By Quarter-Percent

After a slew of data indicated a slowing economy in China, the country's central bank cut interest rates by 0.25% on Thursday. It was the first rate cut in 3 years, and caused markets to rally.

Ben Bernanke Offers No Hints of QE3

Testifying in front of the U.S. Congress on Thursday, Federal Reserve Chairman Ben Bernanke said the Fed was ready to take action, but offered no details or promises on a new round of stimulus. As a result, markets posted reduced gains following Bernanke's statements, after recording strong gains following China's rate cut.

Looking Ahead to Next Week

Markets will likely receive a strong boost on Monday, following Spain's 100-billion euro bailout. The focus in the euro zone will shift back to Greece, as investors anticipate the June 17 elections. Thus, U.S. markets are likely to head higher this coming week.

Investors will also be paying attention to China, with recent data indicating a slow-down in the economy. With May CPI in the country falling to 3%, it gives policy makes room for stimulus. Thus, investors will look for hints of further stimulus in the country. In the U.S., economic data to be released in the coming week includes the PPI and retail sales on Wednesday. CPI and initial jobless claims are scheduled for Thursday. The Empire State manufacturing index, U.S. industrial production and the June reading of consumer sentiment from Thomson Reuters/University of Michigan are expected on Friday.

US Markets Fall Into Correction Territory on Disappointing Jobs Reports

Tweet

U.S. markets tumbled on Friday on disappointing jobs reports from the U.S. and the euro zone. The S&P 500 fell 32.29 points or 2.46% to 1,278.04; the Dow dropped 274.88 points or 2.22% to 12,118.57. For the week, the S&P 500 lost 3%, while the Dow dropped 2.7%. The S&P 500 is now in a correction, after falling 10% from its April 2^nd highs. The index also closed below its 200-day moving average for the first time in 2012 on Friday.

Disappointing Jobs Report from the U.S. and euro zone

On Friday, the U.S. May jobs report showed a gain of only 69,000 non-farm positions, which was far lower than the 165,000 that economists expected. In addition, the unemployment rate rose for the first time since July 2011, to 8.2%.

Meanwhile, the unemployment rate in Spain, France, Italy and Portugal also rose in May, causing the unemployment rate in the 17-member euro zone to reach 11%.

Troubles in Spain Continue

On Friday, Spain's central bank announced that in the first quarter, $97 billion euros were pulled from the country's financial sector. The amount is approximately 10% of Spain's GDP. In addition, the yield on 10-year Spanish debt reached 6.63%, as it continued to head towards the dangerous 7% level. Spanish 5-year CDS, which reflects the probability of a default, reached 615 basis points, a historical high.

U.S. Manufacturing Weakens

On Thursday, U.S. first quarter GDP was adjusted downwards to 1.9%. In addition, initial jobless claims was higher than expected, increasing by 10,000 to 383,000. May Chicago PMI fell to 52.7, close to the 50 mark and its lowest level since September 2009.

Looking Ahead to Next Week

A sustained rally in the market in the coming weeks would likely require stimulative measures from the US Federal Reserve. The Fed is scheduled to meet on June 19-20, and an extension of Operation Twist or an introduction of QE 3 would send markets higher by double digits over several months. Some analysts expect the Fed to take action at a later date, in August.  Ben Bernanke is expected to testify before Congress on Thursday, and he might give a hint of how the Fed intends to act.

In the coming week, if euro zone leaders announce concrete measures and few bad news emerge from the euro zone, markets could get an upward bounce as a result of bargain hunting. Regardless of the direction of the market in the coming week, the magnitude of its movement, either upwards or downwards, will likely be large, as volatility increases.

S&P 500 Posts Best Week In One Month

Tweet

 U.S. markets rose on Friday on better-than-expected earnings from Amazon. The S&P 500 rose 3.38 points or 2.24% to 1,403.36. The Dow gained 23.69 points or 0.18% to 13,228.31. For the week, the S&P 500 gained 1.8% for its best week in a month, as strong corporate earnings overshadowed concerns about the euro zone. The S&P 500 also closed above the psychologically-important 1,400 level.

U.S. First Quarter Growth Disappoints

On Friday, the U.S. Commerce Department announced that first quarter GDP growth was 2.2%, which was lower than the 2.5% the market expected. However, it was higher than the 1.5% that economists expected at the beginning of the year, which prevented the market from falling on the news. On Thursday, U.S. initial jobless claims also disappointed the market, when it fell by only 1,000, to 388,000.

Spain Downgraded by S&P

On Friday, S&P announced that it is downgrading Spain's rating by two notches, from A to BBB+. S&P has also placed Spain's rating on negative watch, and stated that Spain's banking system was too reliant on government funding. Meanwhile, Italy's bond auctions disappointed investors, with the yield on its 10-year debt at 5.84%, which was 60 basis points above last month's auction.

Federal Reserve Reiterates Stance

On Wednesday, after the Fed's much-anticipated meeting, it announced it is continuing its stance of keeping interest rates at the current level until the end of 2014. However, it did not mention QE3.

UK Slips Into Double-Dip Recession

Also on Wednesday, the UK announced that first quarter GDP shrank by 0.2%, which was weaker than the 0.1% growth the market expected. With the negative 0.3% growth in the fourth quarter, the UK is now officially in a double-dip recession.

Apple Boosts Markets

On Wednesday, U.S. markets received a boost from Apple's earnings. The company's profits rose 94% from last year to $11.6 billion. EPS was $12.30, higher than the $9.94 the market expected.

Markets Tumble on Netherlands and France

On Monday, markets tumbled when the Prime Minister of the Netherlands resigned due to a disagreement in parliament over austerity measures. In addition, with the second round of federal elections in France about to get underway, investors faced a large degree of uncertainty. As a result, the yield on Spain's 10-year government bonds rose above 6%, and stock indices in Europe fell more than 1%.

Looking Ahead to Next Week

Investors will be paying close attention to the U.S. March jobs report on Friday. On Wednesday, the ADP jobs report will be announced. In addition, investors will continue to pay attention to corporate earnings. So far, 57% of S&P 500 companies have posted earnings. Next week, companies including Visa, Kraft and Prudential will be reporting results.

With the situation in Spain showing no signs of improvement, it will take stronger-than-expected earnings just to keep the market from falling. If the yield on Spanish debt rises, then the market will likely fall regardless of earnings results. With the UK now in a double-dip recession, it will likely conduct quantitative easing, which should boost the prices of gold and silver.

 

U.S. Stocks Record Best 1st Quarter in 14 Years

Tweet

U.S. markets ended the quarter on a positive note on Friday. Data showed U.S. consumer spending rose by the most in seven months, while consumer confidence in March reached its highest level in 12 months. On Friday, the S&P 500 rose 5.19 points or 0.37% to 1,408.47. The Dow climbed 66.22 points or 0.50% to 13,212.04.

For the first quarter, the S&P 500 rose 12%, while the Dow gained 8%. It was the best first quarter since 1998 and the best quarter overall since 2009.

Consumer Spending and Consumer Confidence Both Rise

U.S. February consumer spending rose 0.8% from January, higher than the 0.6% increase that the market expected. Meanwhile, the Reuters/University Michigan survey showed consumer confidence in March increased to 76.2, an increase of 0.9%.

Initial Jobless Claims Encouraging

On Thursday, weekly initial jobless claims fell 5,000 from last week to 359,000. It was the lowest level since April 2008, and was another week the figure has remained under the critical 400,000 level.

Housing Market Still Weak

On Tuesday, the S&P/Case-Shiller index fell for the 9^th month in a row, to its lowest level since 2003. However, many market watchers believe the housing market is nearing its bottom.

Ben Bernanke Hints at More Easing

On Monday, while attending a forum, Federal Reserve Chairman Ben Bernanke said that despite the improving job market, much of the improvement has been from companies decreasing the number of people they are cutting, rather than increase in hiring. Thus, the job market has not been keeping up with the improvement in the economy. Analysts believe that Bernanke's statements indicate a possibility that he would conduct further quantitative easing.

Looking Ahead to Next Week

After a very strong first quarter for stocks, markets are experiencing a pause in the rally. Investors will focus next week on the March nonfarm payrolls number. In the subsequent week, the direction of the markets will likely be determined by the earnings season. Investors will likely look at company guidance for effects of Europe's entry into a recession and slowing growth in China on US corporate earnings.

With strong gains in the first quarter, further gains would only materialize if there are strong results during earnings season. In addition, the high price of oil (Brent at $122.88/barrel while WTI at $103.02/barrel on Friday) will likely limit gains in the coming week.

Tweet

S&P 500 Posts Best Weekly Gain Since December

Tweet

US markets posted mixed results on Friday, after the Thomson Reuters/University of Michigan consumer sentiment index for February posted a lower-than-expected reading. The index fell in February from 75.3 to 74.3, and was lower than the 76.0 that economists expected.

On Friday, the S&P 500 rose slightly by 1.57 points or 0.11% to 1,404.17. The Dow fell 20.14 points or 0.15% to 13,232.62. For the week, the Dow gained 2.4%, while the S&P 500 posted its 5^th consecutive week of gains.

Stress Test Results Boost Market

Most of the market's gains this week was on Tuesday, because of the results of the stress test on US banks and Fed Chairman Ben Bernanke's statement after the FOMC meeting. The stress test results indicated that of the 19 large banks tested, only 4 banks failed. Several banks were allowed to increase their dividends following the stress test. Following the results, shares of JP Morgan rose 7%.

US Federal Reserve Boosts Economic Outlook

Also on Tuesday, Federal Reserve Chairman Ben Bernanke issued a statement following the FOMC meeting. He improved the wording used to describe economic growth for the next several quarters, from “modest” to “moderate”. Meanwhile, monetary policy remains unchanged, with the current low interest rate to be kept in place until late 2014. A new round of QE was also not mentioned, and Bernanke reiterated continuing Operation Twist.

Looking Ahead to Next Week

With the S&P 500 having gained about 30% since October 3^rd, a 5-10% pullback is likely. In addition, there is concern that Portugal would need to have its debt restructured, since its debt have been at unsustainable high yields. Furthermore, a Greek election is expected in April or May, and the new government's ability to implement tough bailout conditions is in question.

Brent crude has rebounded to settle above $125/barrel this week, as Iranian exports will soon be restricted. The high price of oil presents another headwind for stocks. Thus, North American markets will likely trade sideways or head lower next week.

Tweet

LTRO Lifts S&P 500 To 8th Weekly Gain in Past 9 Weeks

Tweet

US markets fell slightly on Friday, as the recent rally lost some momentum. The S&P 500 fell 4.46 points or 0.32% to 1,369.63. The Dow slipped 2.73 points or 0.02% to 12,977.57. For the week, the S&P 500 rose 0.3%, while the Dow edged 0.05% lower.

The S&P 500 recorded its 8th week of gains in the past 9 weeks, and has risen 9% since the beginning of 2012.

LTRO Boosts Stocks

World markets received a boost on Wednesday when the ECB's second tranche of LTRO was larger than expected. The ECB loaned €529.5 billion ($713.4 billion) to 800 European banks, which was larger than the €500 billion the market expected. It was also larger than the €489 billion in the first tranche.

Bernanke Dashes Hopes for QE3

On Thursday, US Fed Chairman Ben Bernanke dashed the market's hopes for a QE3, when he did not mention quantitative easing during his testimony to Congress. Many investors have been hoping for QE3 to provide more liquidity to markets. As a result, US markets and gold prices fell on Thursday.

Looking Ahead to Next Week

The US government is scheduled to release the February jobs report on Friday. Economists expect non-farm payrolls to have gained 210,000 jobs last month. With the impressive gains that US markets have achieved since the beginning of 2012, markets are susceptible to a pull-back. Thus, a jobs report that is worst than expected could cause a pull-back. Meanwhile, a better-than-expected report could continue to send markets higher.

The high oil price is another concern. The tensions in the Middle East has kept the price of Brent crude above $120/barrel. If the high price of oil continues, it would eat into consumer spending and cut short any rallies in the market. In addition, if the situation with Iran rapidly deteriorates, it would certainly send markets lower.

Tweet