Stocks Set to Rise; Banks Up After Downgrade
Stock market pointed indicated a slightly higher open on Wall Street on Friday as bank stocks actually got a lift from a high-profile downgrade.
Traders took optimistic positions the day after the market suffered its second-worst loss of the year, a whopping 251-point Dow drop set up by poor economic data and advice from Goldman Sachs to short the stock market. (Get the latest futures reading).
Two economic reports on Thursday showed Chinese and U.S. factory output slowing.
U.S manufacturing grew at its slowest pace in 11 months in June and the number of Americans filing new applications for unemployment benefits fell only slightly in the week, while the longer-term average hit a 2012 high.
Moody’s Investors Service downgraded the credit ratings of 15 of the world’s largest banks late on Thursday.
The bank downgradesby Moody’s had however been anticipated for several months after the ratings agency placed them on its watch list with a negative outlook and analysts said the move was "backward looking".
Most if not all the banks in question posted premarket gains, led by Morgan Stanley , which rose more than 3 percent, and Bank of America, up more than 1 percent.
The market's relatively sanguine view of the downgrades is likely due to relief that the downgrades were less than expected, with many analysts expecting that the biggest names would fall three notches when in fact they fell just two.
Some traders said stocks also suffered Thursday because of Goldman's call to short the Standard & Poor's 500 to a downside price target of 1,285. However, Goldman on March 21 also called for a once-in-a-lifetime buying opportunity — just days before the index began a 9 percent selloff that lasted into early June.
Traders are likely to be watching the 1,310 level on the index today for support.
In Europe, equity markets fell as stocks looked set to round off another bad week on Friday with little for investors to rally behind.
German business sentiment fell for a second straight month in June to its lowest level in over two years, revealing the strain of the crisis in the euro zone on its largest economy.
European finance ministersmet in Luxembourg to discuss how to channel financial aid to Spanish lenders which have suffered bad debts as a result of the collapse of the domestic property market.
Meanwhile, the leaders of Germany, France, Italy and Spain will meet in Rome on Friday in a bid to restore confidence in the euro zone ahead of a full EU summit next week.
German Chancellor Angela Merkel is likely to find herself outnumbered.at the meeting as the four look for a practical way to achieve banking and fiscal union.
There are no major U.S. economic reports due for release on Friday.
In corporate news:
Darden Restaurants said sales have been falling at its flagship Red Lobster and Olive Garden outlets, dropping more than 7 percent in May alone. Shares fell more than 3 percent.
Electronic Arts shares slipped after the video game company suffered a downgrade to neutral from buy at Citigroup.
Microsoft is considering making its own smartphone, according to veteran Wall Street analyst Rick Sherlund of Nomura.
Microsoft has not confirmed or denied Sherlund’s assertion, which comes just after it unveiled its Windows Phone 8 software and its own tablet computer. Shares edged higher in premarket trading.
Ryder cut its quarterly earnings forecast in response to falling demand for commercial rental services. The truck leasing company said it would cut costs and cut its rental fleet on expectations that weakness will continue throughout the year. Shares tumbled more than 9 percent premarket and Raymond James cut the company to "outperform" from "strong buy."
Monster Beverage will replace Sara Lee in the S&P 500 index after the close of trading on June 28. Sara Lee will spin off its international coffee and tea business and change its name to Hillshire Brands. Hillshire stock will move to the S&P MidCap 400.
Johnson & Johnson’s blood clot drug Xarelto has been rejected by the Food and Drugs Administration for wider use. J&J had applied for approval to use Xarelto to reduce risk of heart attacks and strokes in patients with acute coronary syndrome.
Wynn Resorts has won a court decision that takes its legal battle with Japanese billionaire Kazuo Okada back to Nevada state court.
The court had originally blocked Okada’s attempts to access Wynn’s financial records in the ongoing battle between the two sides.