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.