Stock Market News for December 20, 2011 - Market News

Benchmarks moved into the red zone on Monday after European debt crisis escalated following dismal comments by European Central Bank head Mario Draghi. Adding to the gloom was a Wall Street Journal report that suggested the Federal Reserve had accepted new standards that require banking giants to hold extra capital. Banking stocks declined after the report, further dampening investor sentiment.

The Dow Jones Industrial Average (DJIA) was down 0.8% to finish the day at 11,766.26. The Standard & Poor 500 (S&P 500) plunged 1.2% and closed the day at 1,205.35. The Nasdaq Composite Index slumped to 2,523.14, after dropping 1.3%. The fear-gauge CBOE Volatility Index rose 2.6% and settled at 24.92. It was not a busy day on the New York Stock Exchange (NYSE) as total volume was 3.6 billion shares, lower than the average of roughly 4.3 billion. Decliners outpaced the advancers, as for every 77% of the stocks that moved down, only 21% managed to register gains.

Markets had opened higher, before European concerns once again made their adverse effects evident. Media reports prevented benchmarks from gaining any strength. In addition, the acknowledgement that the European economic outlook was one of "high uncertainty" by ECB's head dealt a severe blow to market hopes. Speaking about the euro he commented: "Euro area economic activity should recover, albeit very gradually, in the course of 2012," and added, "What we certainly want to avoid is that serious severe credit tightening that could induce a further slowdown of growth and a possible recession…We want to avoid that". He also washed away all hope of the ECB expanding its powers and stepping in to bolster purchase of government bonds. He said: "People have to accept that we have to, and always will, act in accordance with our mandate and within our legal foundations".

Meanwhile, a report from Wall Street Journal dragged banking stocks significantly lower, and added to the broader negative sentiment. According to the report, the Federal Reserve has adopted the Basel measures and asked banking giants to hold extra capital. The report stated: "The central bank's decision to accept the rules laid out by regulators in Basel, Switzerland, as part of a draft proposal that could come before Christmas is a defeat for giant U.S. banks that argued the guidelines needn't be so strict. They contended the Basel approach could prompt them to reduce lending and hurt the economy".

Bogged down by the concerns, Bank of America Corporation (NYSE: BAC ) was not only the heaviest decliner among the Dow components, but it traded at its lowest level since March 2009. It even fell below the psychological level of $5 a share. Among other bellwethers, Citigroup, Inc. (NYSE: C ), JPMorgan Chase & Co. (NYSE: JPM ), The Goldman Sachs Group, Inc. (NYSE: GS ), Morgan Stanley (NYSE: MS ) and Wells Fargo & Company (NYSE: WFC ) declined 4.7%, 3.7%, 2.7%, 5.5% and 2.6%, respectively.

Additionally, markets derived little cheer from the European finance ministers' plans to contribute €150 billion to the International Monetary Fund to help the region fix its debt crisis. This is because the amount is well short of the €200 billion which the European leaders had earlier agreed to. Benchmarks also fell lower as the Dow Jones Newswires reported that the finance ministers of the European Union had been unable to devise new agreements and bolster the rescue fund after a four-hour tele-conference.

On the economic front, the National Association of Realtors provided positive data on builder sentiment. The National Association of Home Builders/Wells Fargo Housing Market Index was up 2 points to 21. The index set a record as in the words of David Crowe, Chief Economist of the National Association of Home Builders, "This is the first time that builder confidence has improved for three consecutive months since mid-2009, which signifies a legitimate though slowly emerging upward trend".

However, this report could hardly make a difference to the markets' downward trajectory and the SPDR S&P Homebuilders ( XHB ) index ended down 1.1%, after edging up in the initial session. Stocks like KB Home (NYSE: KBH ), Toll Brothers Inc. (NYSE: TOL ), DR Horton Inc. (NYSE: DHI ) and PulteGroup, Inc. (NYSE: PHM ) slumped 2.6%, 2.0%, 2.0% and 3.0%, respectively.

BANK OF AMER CP ( BAC ): Free Stock Analysis Report

CITIGROUP INC ( C ): Free Stock Analysis Report

D R HORTON INC ( DHI ): Free Stock Analysis Report

GOLDMAN SACHS ( GS ): Free Stock Analysis Report

JPMORGAN CHASE (JPM): Free Stock Analysis Report

KB HOME (KBH): Free Stock Analysis Report

MORGAN STANLEY (MS): Free Stock Analysis Report

PULTE GROUP ONC (PHM): Free Stock Analysis Report

TOLL BROTHERS (TOL): Free Stock Analysis Report

WELLS FARGO-NEW (WFC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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