A strong rally in banking shares helped benchmarks return to
their winning ways just a day after markets incurred their
second-worst losses for the year. Banking stocks rallied despite a
rate cut by Moody's Investors Services after the closing bell on
Thursday. However, Friday's gains failed to help the Dow and
S&P 500 to finish in the green for the week and the Nasdaq was
the only benchmark which bucked the trend.
The Dow Jones Industrial Average (DJI) gained 0.5% and ended at
12,640.78. The Standard & Poor 500 (S&P 500) surged 0.7%
and finished Friday's trading session at 1,335.02. The tech-laden
Nasdaq Composite Index jumped 1.2% and was up 33.33 points to close
at 2,892.42. The fear-gauge CBOE Volatility Index (VIX) slumped
9.8% and settled at 18.11. Consolidated volumes on the New York
Stock Exchange, the American Stock Exchange and Nasdaq were roughly
7.7 billion shares, just short of last year's daily average of 7.84
billion. Advancing stocks outnumbered the decliners on the NYSE.
While 66% gained, 30% stocks moved down.
After the closing bell on Thursday, Moody's Investors Service
downgraded credit ratings of more than 15 major global banks. These
included five of the biggest domestic banks, namely Bank of America
Corporation (NYSE:
BAC
), Citigroup, Inc. (NYSE:
C
), The Goldman Sachs Group, Inc. (NYSE:
GS
), JPMorgan Chase & Co. (NYSE:
JPM
) and Morgan Stanley (NYSE:
MS
). Bank of America was downgraded by a notch to Baa2 from Baa1,
while the rest were downgraded by two notches. Citigroup, Goldman
Sachs, JPMorgan and Morgan Stanley dropped to Baa2, A3, A2 and Baa1
from A3, A1, Aa3 and A2, respectively.
The financial arena has been fraught by turmoil over the past
few months which included European debt woes and dismal economic
readings both in the U.S. and China, the world's second-largest
economy. The ratings downgrade in the banking sector came amidst
such times and analysts opined that such an action was already
anticipated. Further, the downgrades of few banks were less severe
than what was expected. Thus, banking stocks were hardly affected
and apart from Goldman Sachs, which dropped 0.3%, all of these
banks moved higher on Friday. Bank of America, Citigroup, JPMorgan
and Morgan Stanley gained 1.5%, 0.6%, 1.4%, and 1.3%,
respectively.
Separately, the European Central Bank (ECB) eased its rules on
collaterals. In a statement, ECB noted: "The Governing Council has
reduced the rating threshold and amended the eligibility
requirements for certain asset-backed securities (ABS)… It has thus
broadened the scope of the measures to increase collateral
availability which were introduced on 8 December 2011 and which
remain applicable".
Investor sentiment thus remained positive throughout Friday's
session, just a day after markets witnessed their second-worst
showing of the year following dismal global economic readings. On
Thursday, benchmarks were battered by reports of China's
manufacturing activity plunging to the lowest level in seven
months, while Euro-zone's business activity continued its downslide
for the fifth straight month. Things were not bright on the home
front too, as initial claims dropped and Philadelphia Fed's data on
U.S. mid-Atlantic region's manufacturing activity showed signs of
contraction. While these factors severely affected the benchmarks
on Thursday, gains on Friday could only curb weekly losses. The Dow
and S&P 500 dropped 1.0% and 0.6%, respectively, for the week.
However, the Nasdaq gained 0.7%.
BANK OF AMER CP (BAC): Free Stock Analysis
Report
CITIGROUP INC (C): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
Report
MORGAN STANLEY (MS): Free Stock Analysis Report
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