Stocks Log Weekly Gain Despite EU Worries
Stocks bounced off their lows Friday, but still ended in negative territory amid expectations of an imminent S&P ratings downgrade of several euro zone countries. Despite the day's losses, stocks still posted a gain for the week.
With stocks off their worst levels, some experts said the move implies that U.S. equities may have already priced in the negative news or are in the process of decoupling from Europe.
“We’re seeing more stabilizing in the U.S. and [equities are] being a lot less reactive to Europe as a lot more has been focused domestically,” said Daniel Penrod, senior industry analyst at California Credit Union League.
The Dow Jones Industrial Average finished lower, led by BofA and JPMorgan . Meanwhile, Chevron led the blue-chip gainers.
The S&P 500 and the Nasdaq also closed lower. The CBOE Volatility Index, widely considered the best gauge of fear in the market, gained near 22.
All 10 S&P sectors ended in negative territory, led by financials and techs.
France will be downgraded by one notchby the S&P, according to the French Prime Minister. And in the latest move, Italy has been informed of an imminent S&P downgrade, according to the Italian news agency ANSA, citing unnamed government sources.
Meanwhile, the ratings agency is also expected to cut Spain and Portugal's credit ratings by two notches and downgrade Austria by one notch, according to French newspaper Les Echos, without citing its sources. The newspaper added that S&P would spare Germany, the Netherlands, Finland and Luxembourg from a downgrade.
Several other euro zone countries could face "imminent" downgradeby S&P, according to a senior euro zone government source. While the sources did not specify which countries will be affected, Germany is not included on the list. S&P declined to provide comment.
However, most traders appeared largely unfazed by the latest downgrade threats.
“This is not new news—we’ve been talking about these downgrades for months,” said Doreen Mogavero, president and CEO of Mogavero Lee & Company. “This is a headline reaction and not fundamental…you’re going to get volatility every time you have a significant headline.”
Adding to woes, talks between Greece and its creditors banks came to a halt, with Greeks warning of a possible collapseif no bond-swap deal is forged in the near-term. The negotiations had been expected to reach a conclusion next week.
The euro extended losses against the U.S. greenback, hitting a 17-month low and European shares finished lower.
Meanwhile, Italy successfully sold the maximum planned amount in 3-year bonds, but demand failed to match positive auction results in Spain on Thursday.
JPMorgan posted profits that met expectations, but shares fell after the banking giant missed on revenue. The bank is the first major financial company to post earnings. Rivals Citigroup , Wells Fargo , BofA and Morgan Stanley among others are slated to post next week.
Bank of America has informed U.S. regulators that it is willing to pull back from some parts of the countryif its financial problems continue to worsen, according to reports.
On the economic front, consumer sentiment reached 74.0 in its preliminary January reading, soaring to the highest level since May, according to the University of Michigan’s Consumer Sentiment Index. Economists surveyed by Reuters expected a reading of 71.2.
“We’re getting a sense that this New Year is bringing hope that we’ve talked about for the last two years when our economy pushes forward,” said Penrod. “It’s very likely that we’ve bottomed and that we’re seeing the right trending and right growth.”
McDonald's has extended its sponsorship of the Olympic Games until 2020.
Among other Dow components, Caterpillar finished higher after Barclays raised its price target on the heavy equipment maker to $128 from $115.
Apple released a list of its major suppliersfor the first time, saying it discovered a number of environmental violations in plants in China.
Swiss drug maker Novartis said it is cutting nearly 2,000 jobsin the U.S. ahead of the patent loss of its top-selling blood pressure drug Diovan.
Metabolix tanked after the bio-science company announced that Archer Daniels Midland will be terminating its joint venture.
Meanwhile, Chipotle Mexican Grill hit another all-time high after brokerage William Blair raised its rating on the restaurant chain to "outperform" from "market perform."
Also on the economic front, the trade deficit totaled $47.8 billion, widening in November to its largest in five months, according to the Commerce Department.
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Coming Up Next Week:
MONDAY: MLK Day—All Markets Closed
TUESDAY: Empire state mfg survey; Earnings from Citigroup, Wells Fargo, Charles Schwab
WEDNESDAY: Weekly mortgage apps, PPI, industrial production, housing market index; Earnings from Goldman Sachs, Bank of NY Mellon, Northern Trust, PNC Bank, State Street, US Bancorp, Ebay
THURSDAY: CPI, housing starts, jobless claims, oil inventories; Earnings from BofA, Morgan Stanley, Sony Ericsson, UnitedHealth, AmEx, Google, IBM, Microsoft, Capital One
FRIDAY: Existing home sales; Earnings from GE, Schlumberger
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