U.S. Stocks Record Worst Week of 2012 on Spanish Yields and China GDP

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U.S. markets fell on Friday on weaker-than-expected first quarter China GDP and the rising yield on Spanish sovereign debt. On Friday, the S&P 500 fell 17.30 points or 1.25% to 1,370.27. The Dow dropped 136.99 points or 1.05% to 12,849.59. For the week, the S&P 500 dropped 2%, while the Dow fell 1.4%. It was the worst week for the S&P 500 so far in 2012.

China GDP Disappoints

On Friday, China announced 1^st quarter GDP growth of 8.1%, which was lower than the 8.4% the market expected. It was also the slowest growth in almost 3 years. This sparked concern about China's ability to boost world economic growth, at a time when the euro zone is in a recession.

Spanish Yields Spark Euro Zone Concerns

On Friday, the yield on Spain's 10-year government bonds approached 2012 highs, while CDS on Spanish government debt rose to a record high. The yield on Spain's 10-year government bonds rose to almost 6%, while CDS on Spanish debt reached 500 basis points for the first time. As a result, Europe's three largest indices fell on Friday, with the German DAX and the French CAC each falling by about 2%.

Concerns about the euro zone debt crisis negatively affected markets for much of the week. On Thursday, Italy had a disappointing bond action. 3-year government bonds were auctioned at 3.89%, much higher than the 2.76% in March. In addition, Italy's stock market fell 5% at one point on Wednesday.

U.S. Initial Jobless Claims Disappoint

After several weeks of falling initial jobless claims numbers, the claims number on Thursday disappointed markets when it rose over the previous week. Initial jobless claims rose to 380,000, worse than the 355,000 the market expected.


Looking Ahead to Next Week

Investors will be paying close attention to the second week of earnings season next week, when 10 Dow components including Intel will be reporting earnings. In addition, banks including Citigroup, Goldman Sachs and Morgan Stanley will be reporting results. This follows the better-than-expected earnings announced by JP Morgan and Wells Fargo last week.


With two consecutive weeks of decline for U.S. markets, if earnings beat expectations next week, markets will likely rise for the week if the euro zone situation does not worsen. However, if Spanish yields continue to climb, it would neutralize gains that the market achieves next week.

S&P 500 Posts Worst Week in 2012 on Rising Spanish Yields

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U.S. markets fell on Thursday in a shortened week of trading, as rising yields on Spanish government debt continued to trouble markets. On Thursday, the S&P 500 slipped 0.88 points or 0.06% to 1,398.08. Meanwhile, the Dow fell 14.61 points or 0.11% to 13,060.14. For the week, the S&P 500 fell 0.7%, which is its worst weekly performance in 2012.

U.S. Jobs Numbers Disappoint

On Friday, the U.S. jobs data for March showed a gain of 120,000 jobs, which was worse that the 203,000 the market expected. The gain was also the smallest in 5 months. However, the unemployment rate in March fell by 0.1% to 8.2%. It was better than the 8.3% economists expected, and was the lowest since January 2009. However, the 0.1% fall in unemployment was likely due to workers giving up searching for work.

Initial Jobless Claims Falls to 4-Year Low

U.S. initial jobless claims have been consistently below the critical 400,000 mark in recent weeks. On Thursday, initial jobless claims fell by 6,000 from the previous week, to 357,000. It was the lowest level in 4 years.

Spanish Yields Sink Markets

Following weak demand in Spain's bond sale on Wednesday, Spanish debt yields rose to levels last seen during the euro zone debt crisis. Investors became concerned about whether Spain would eventually need a bailout. This sank world markets on Wednesday, and continued to drag on markets on Thursday.

Federal Reserve Minutes Disappoints Investors

On Wednesday, minutes from the recent Federal Reserve meeting helped to push markets lower. The minutes indicated the Fed will not consider another round of quantitative easing in the near future. World markets fell as a result, since investors prefer more liquidity in the markets.

Looking Ahead to Next Week

The start of earnings season next week will likely determine the direction of U.S. markets. Companies including JP Morgan and Google will be reporting their quarterly results. In addition, investors will be closely watching data from China next week, as the country will be releasing first-quarter GDP, inflation and trade balance numbers.

The weaker-than-expected U.S. March jobs data on Friday will likely pull markets lower on Monday. In addition, the rising Spanish bond yields will likely affect markets negatively early next week. Thus, unless companies post better-than-expected earnings, U.S. markets will likely fall next week.

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