Anxiety over Europe's financial health dragged the benchmarks
lower on Friday. A better-than-expected consumer confidence report
to provide little respite, as investors remained jittery ahead of
the long weekend. Nonetheless, the strength shown through the week
finally enabled the markets cling on to its first weekly gain in
many weeks.
The Dow Jones Industrial Average (DJI) dropped 0.6% to end at
12,454.83. The Standard & Poor 500 (S&P 500) was down to
1,317.82, after shedding 0.2%. The tech-laden Nasdaq Composite
Index dropped a mere 1.85 points or 0.1% to finish Friday's trading
session at 2,837.53. The fear-gauge CBOE Volatility Index (VIX)
edged up 1.0% to settle at 21.76. Trading volumes were
significantly weak on Friday as investors refrained from betting
big ahead of the Memorial Day holiday on Monday. Consolidated
volumes on the New York Stock Exchange, Nasdaq and the American
Stock Exchange were 4.78 billion shares, sharply lower than last
year's daily average of 7.84 billion.
Concerns from across the Atlantic, primarily from Spain took a
toll on Friday's trading session. The fourth-largest lender in
Spain, Bankia, was in need of a bailout and that weighed on
investors' minds. Bankia, the nationalised lender, said that it was
in dire need of €19 billion from the state to help shore up its bad
loans. The amount is way higher than expectations. Left with no
alternative, Spainish Prime Minister Mariano Rajoy, said that the
State would have to provide Bankia with the necessary bailout
money. Mariano Rajoy commented: "We took the bull by the horns
because the alternative was collapse".
The need for the bailout exposes the fragile condition of the
banking system. The cracks were further highlighted as Standard
& Poor's downgraded credit ratings of five Spanish banks that
included Bankia and its parent Banco Financiero y de Ahorro (BFA),
Banco Popular, Bankinter, and Banca Civica. Elaborating on the
downgrade, S&P's said: "The rating actions follow our review of
the wider implications for economic and industry risks in the
Spanish banking sector after our two-notch downgrade of the Kingdom
of Spain".
On the domestic front, the financial sector took a hit and the
Financial Select Sector SPDR (XLF) dropped 0.4%. Among financial
stocks, American Express Company (NYSE:
AXP
), Citigroup Inc. (NYSE:
C
), JPMorgan Chase & Co. (NYSE:
JPM
), Morgan Stanley (NYSE:
MS
) and UBS AG (USA) (NYSE:
UBS
) dropped 0.9%, 0.7%, 1.4%, 0.5% and 1.2%, respectively.
Amidst these concerns, The Thomson Reuters/University of
Michigan index of consumer sentiment came out with positive
readings as it jumped to a four and a half year high. The consumer
index was up to 79.3 this month, up from 76.4 last month. The
figures also surpassed consensus estimates of 77.6. It is being
believed that the reading shows that domestic consumers are more
confident about the economy since the recession.
Following the data, the retail sector obviously enjoyed some
gains and the SPDR S&P Retail (XRT) was up 0.5%. J.C. Penney
Company, Inc. (NYSE:
JCP
), Kohl's Corporation (NYSE:
KSS
), The Bon-Ton Stores, Inc. (NASDAQ:
BONT
) and Wal-Mart Stores, Inc. (NYSE:
WMT
) jumped 2.8%, 0.9%, 2.0% and 0.4%, respectively.
While, this encouraging economic reading was completely erased
European worries, the benchmarks still managed to end in the green
for the week. Markets mostly had a choppy run through the week with
losses turning into gains and vice versa at the final stages. The
week also saw China's Premier Wen Jiabao prioritizing economic
growth over curbing inflation and also endured hints of Greece
exiting euro. The G8 meet and the meeting of the meeting of the
European leaders at Brussels failed to give any clear solution to
the region's debt woes, but European Union president Herman Van
Rompuy provided an assurance, saying: ""We want Greece to remain in
the euro area while respecting its commitments". Eventually, the
benchmarks posted their first weekly gains this month and the Dow,
S&P 500 and Nasdaq jumped 0.7%, 1.7% and 2.1%,
respectively.
AMER EXPRESS CO (AXP): Free Stock Analysis
Report
BON-TON STORES (BONT): Free Stock Analysis
Report
CITIGROUP INC (C): Free Stock Analysis Report
PENNEY (JC) INC (JCP): Free Stock Analysis
Report
JPMORGAN CHASE (JPM): Free Stock Analysis
Report
KOHLS CORP (KSS): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
UBS AG (UBS): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis
Report
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