U.S. Markets Fall Ahead of Long Weekend on Spanish Bank Troubles

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U.S. markets fell on Friday on a relatively uneventful day before the long weekend. The S&P 500 fell 2.86 points or 0.22% to 1,317.82. The Dow dropped 74.92 points or 0.60% to 12,454.83. For the week, the S&P 500 ended higher, breaking the index's streak of consecutive declines at 3 weeks. For the week, the S&P 500 gained 1.7%, while the Dow rose 0.6%. The S&P 500 has fallen 5.7% since the beginning of May, but is still up 4.8% for 2012.

Spanish Bank Bankia Seeks Expanded Bailout

On Saturday, Spanish bank Bankia requested $19 billion euros of additional bailout funding from the Spanish government, which was twice as large as what the market expected. As a result, S&P downgraded Bankia and two other banks to a “junk” rating. On Thursday, the Spanish government had decided to completely nationalize Bankia by injecting $9 billion into the bank. However, that amount was determined to be inadequate by Saturday. In addition, the Spanish government injected $4.5 billion euros into Bankia in early May, which brings the entire bailout to a total of $23.5 billion euros.

EU Leaders Meet But Produce No Results

On Tuesday, EU leaders began to meet for a summit in Brussels to resolve the euro zone debt crisis. French President Hollande pushed for the issuance of Eurobonds, which Germany resisted. The market doubted that the meeting would produce any significant results. In addition, Reuters reported that EU officials were instructing EU member nations in preparing for Greece to exit the euro zone. As a result, the Dow fell around 160 points in early trading on Wednesday. Meanwhile, the euro fell to its 21-month low of US$1.2615. By Friday, Germany and France were unable to come to an agreement on Eurobonds, and simply suggested 3 measures to help economic growth.

Facebook Shares Tumble In Second Week of Trading

On Monday, Facebook shares tumbled 11% after Friday's disappointing IPO. The shares closed down $4.20 at $34.03. By the end of the week, FB closed at $31.91, after losing 3.4% on Friday. It hit a intraday low of $30.94 on Tuesday.

Looking Ahead to Next Week

With elections in Greece to be held on June 17^th, it is likely the situation in the country has stabilized until then. While the possibility of Greece exiting the euro zone will provide a negative overhang for stocks, its effect could be small until the election occurs. Meanwhile, most of the euro zone concerns will be focused on Spain, as a result of the Bankia bailout. Investors will be watching to see whether Spain's other banks also require bailouts.

Next week, investors will be watching a long list of economic data to be released in the U.S. Consumer confidence, GDP and May non-farm payrolls reports will be released. Better-than-expected economic data from the U.S. could send markets higher next week, if few negative news emerge from the euro zone.

U.S. Markets Tumble on Greece Euro Zone Exit Concerns

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The S&P 500 fell for a 6^th consecutive day on Friday on euro zone worries, and posted its worst week since November. On Friday, the S&P 500 fell 9.64 points or 0.74% to 1,295.22. The Dow lost 73.11 points or 0.59% to 12,369.38. For the week, the S&P 500 tumbled 4.3%, while the Dow fell 3.5%. The S&P 500 has fallen 7.3% so far in May.

Facebook Records Lackluster Performance After IPO

After its IPO on Friday, shares of Facebook initially rose 10% in early trading. However, it closed just 0.6% above its issue price of $38, at $38.23. The shares almost fell below the $38 level, but were supported by its underwriters.

16 Spanish Banks Downgraded as Euro Zone Concerns Spread

On Friday, Moody's downgraded 16 Spanish banks by 1 to 3 notches, as concerns about Greece spread to other PIIGS nations. Meanwhile, with the increasing threat of Greece leaving the euro zone, S&P downgraded Greece on Friday, from B- to CCC.

Spanish Debt Yields Hit Record Highs

On Thursday, Spain auctioned $2.5 billion of 3- and 4-year government bonds. The yield on the 4-year bonds was 5.106%, much higher than the 3.374% at the last auction. As a result, the yield on 10-year Spanish bonds rose to 6.38%, and its spread versus German debt rose to 500 basis points.

Greeks Rush To Withdraw Deposits from Banks

With the increasing threat of Greece leaving the euro zone, Greeks have been rushing to withdraw money from banks. On Monday, Greeks withdrew $700 million euros from Greek banks. The situation was similar on Tuesday. This caused the euro to fall to US$1.2688 on Wednesday, and the yield on Spanish 10-year debt to hit 6.51%.

Looking Ahead to Next Week

With the severity of the euro zone crisis increasing, markets will likely continue to fall until the situation in Greece is resolved, either with a temporary solution by the ECB/EU/IMF or through exiting the euro zone. G8 leaders have been meeting this weekend, and investors will look to see if there are any concrete measures announced next week. Meaningful action by the G8 would provide markets with a boost. Investors will also be looking at the German, French and euro zone PMIs to gauge the health of the euro zone economy. In addition, Germany's Ifo for business sentiment will shed light on the strength of Europe's leading economy.