Reports that Spain would ask for a bailout to save its troubled
banks guided the benchmarks higher on Friday. Benchmarks had being
initially trading in the red Friday morning until this development
helped them recoup all their losses. The gains made on Friday were
the benchmarks' largest for this year. Separately, US wholesale
inventories increased and retail-giant Wal-Mart Stores touched a
12-year high. Moreover, the U.S. President stated that European
officials have an "urgent need to act" and urged them to fix the
region's lingering debt concerns.
The Dow Jones Industrial Average (DJI) jumped 0.8% and ended at
12,554.20. The Standard & Poor 500 (S&P 500) gained 0.8%
and finished Friday's trading session at 1,325.66. The tech-laden
Nasdaq Composite Index inched up by a percent and closed 27 points
higher at 2,858.42. The fear-gauge CBOE Volatility Index (VIX)
dropped 2.3% and settled at 21.23. It was a session which witnessed
thin volumes. Consolidated volumes on the New York Stock Exchange,
Nasdaq and the American Stock Exchange were 6.2 billion shares,
lower than the year-to-date daily average of 6.85 billion shares.
Advancers easily outnumbered declining stocks on the NYSE; as for
68% stocks that advanced, 29% stocks were on the declining
Benchmarks opened in the red and lingered there for a while
until positive news poured in. According to sources, Spain would
request for a bailout for its banks. The news brought relief to the
markets as investors were worried over Europe's debt crisis, where,
apart from Greece, Spain had become a major flashpoint. European
finance ministries were well aware of Spain's dire need of a
bailout and a source confirmed that Spain might ask for a package
worth $100 billion. Reportedly, five senior members from the
European Union and German officials noted that a conference call
was scheduled on Saturday morning, where the euro-zone deputy
finance ministers were to discuss the bailout matter.
Spain was to become the fourth country among the 17-nation Euro
block to ask for a bailout. The country has had a tough time for
quite some time now and urgently needs to recapitalize its banks.
Late last month, the country had announced that it would bailout
one of the country's largest lenders, Bankia. Earlier during the
week a German magazine had said that German Finance Minister
Wolfgang Schaeuble was pushing Spain to seek aid from the European
Financial Stability Facility. However, Germany clarified that
Spain's decision to seek financial aid was "exclusively" the
latter's choice. Later on Wednesday, sources claimed that European
Union officials and Germany were examining ways to rescue the
beleaguered Spanish banks.
Eventually, with increasing pressure on the country, sources
indicated that Spain was set to seek a bailout. The bailout will
bring relief not only to the nation, but to Europe as a whole.
Meanwhile, President Obama urged European leaders to tackle the
European debt crisis and aid the banking sector. Obama sounded out
a a reminder about the consequences of the European debt climate
and urged the leaders to work together to resolve the matter.
Striking a positive note he said: "The good news is there is a path
out of this challenge". Speaking on the Greek crisis, he said: "It
is in everybody's interest for Greece to remain in the euro zone…
"The Greek people also need to recognize that their hardships will
likely be worse if they leave the euro zone".
While Obama's comments reflected how the leaders are
prioritizing tackling serious financial concerns, an increase in
U.S. wholesale inventories also somewhat lifted the mood. According
to the U.S. Department of Commerce: "Total inventories of merchant
wholesalers, except manufacturers' sales branches and offices,
after adjustment for seasonal variations but not for price changes,
were $483.5 billion at the end of April, up 0.6percent (+/-0.4%)
from the revised March level and were up 8.2 percent (+/-1.1%) from
the April 2011 level".
Nine of the ten S&P 500 industry groups finished in the
green. With developments largely focusing on the financial troubles
of Spain and its banks, the U.S. financial sector enjoyed decent
gains on Friday. The Financial Select Sector (XLF) gained 1.2% and
among the financial stocks, American Express Company (NYSE:
), Citigroup Inc. (NYSE:
), JPMorgan Chase & Co. (NYSE:
), Morgan Stanley (NYSE:
) and U.S. Bancorp (NYSE:
) jumped 1.1%, 3.2%, 2.7%, 2.2% and 1.8%, respectively.
Meanwhile, after hovering near a12-year high, Wal-Mart Stores,
) jumped 3.6% on Friday, ultimately reaching a 12-year high. As for
other retailers, Dollar General Corp. (NYSE:
), Family Dollar Stores, Inc. (NYSE:
), Target Corporation (NYSE:
) and Macy's, Inc. (NYSE:
) gained 2.7%, 3.6%, 3.3% and 2.0%, respectively.
With the closing bell on Friday, investors were not only
relieved after a day of gains, but the bigger news was that
benchmarks had recorded their biggest weekly for the year. These
increases come on the heels of a series of losses that investors
have witnessed over the past few weeks. European concerns in
combination with global economic tensions have dented the markets
severely. Greek economic woes resulted in severe losses in May.
However, June opened with appreciably high gains as the week
witnessed many positives. During this week, benchmarks recorded
their best-one day gains for the year following comments by the
Atlanta and San Francisco Fed presidents who fuelled hopes of
another round of economic stimulus. Nonetheless, Fed Chairman Ben
Bernanke dashed these hopes later on Thursday. Separately,
better-than-expected U.S. service sector data, China's interest
rate cut, the first drop in initial claims since late April, and
reports of Spain considering seeking a bailout combined to help
benchmarks post record gains. The Dow, S&P 500 and Nasdaq
jumped 3.6%, 3.7% and 4.0%, respectively, for the week.
AMER EXPRESS CO (AXP): Free Stock Analysis
CITIGROUP INC (C): Free Stock Analysis Report
DOLLAR GENERAL (DG): Free Stock Analysis Report
FAMILY DOLLAR (FDO): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
MACYS INC (M): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
US BANCORP (USB): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis
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