Markets shed early gains to end mixed after Fitch ratings put seven European economies under credit watch negative. The gains were primarily a result of European developments as Italian government won a confidence vote on austerity measures. It was a choppy session for the benchmarks thanks to "quadruple-witching," which is the expiration of four types of futures contracts. With the possibility of euro nations such as Italy and Spain’s debt ratings being downgraded, benchmarks ended the week sharply lower.
On Friday, the Dow Jones Industrial Average (DJIA) dropped less than 0.1% to end almost flat at 11,866.93. The Standard & Poor 500 (S&P 500) was up 0.3% and finished at 1,219.66. The Nasdaq Composite Index gained 0.6% to close Friday’s trading session at 2,555.33. Meanwhile, on a mixed day of trading with concerns creeping into the late session, the fear-gauge CBOE Volatility Index (VIX) reflected subdued fears, declining 3.3% to close at 24.29. However, the fear-gauge index had been trading even lower during the earlier part of the day. It was a busy day for the Street as composite volumes on the New York Stock Exchange, Amex and Nasdaq were roughly 8.9 billion shares, better than this year’s average of 7.9 billion. Advancers outdid declining stocks on the NYSE, as for 60% of the gainers, 37% of the stocks ended down. The remaining 3% of the stocks remained unchanged.
As Friday came to a close, investors were severely affected after benchmarks failed to hold on to the day’s initial gain and panicked even more after benchmarks lost over 2.5% for the week. The Dow, S&P 500 and the Nasdaq slumped 2.6%, 2.8% and 3.5%, respectively, for the week. European and domestic concerns had placed significant pressure on the markets over last week. The week opened with Fitch Ratings and Moody's Investors Service severely criticizing the new European accord. On Tuesday, the Federal Reserve acknowledged that the global financial economic scenario can significantly impact US markets. Sentiments were further dampened on Thursday after German Chancellor Angela Merkel voiced her opposition against increasing the lending power of the euro-zone bailout fund on Wednesday.
The week also saw the euro falling to its lowest point since January this year, settling below $1.30. However, on Thursday, a record drop in initial claims numbers and a strong manufacturing report helped the benchmarks register their first gains for the week. However, comments from International Monetary Fund chief Christine Lagarde, which hinted at a gloomy global economic outlook, kept Thursday’s gains in check and combined with Friday’s worrying factors, the week ended on a negative note.
Coming back to Friday’s developments, markets were boosted by news of the Italian government winning a confidence vote on its austerity measures. The lower house of the parliament supported the austerity measures by 402 to 75. However, investors now await the crucial Senate vote on these measures scheduled for December 23, 2011.
However, investor sentiment reversed its course in the afternoon after ratings agency Fitch put European countries Belgium, Spain, Slovenia, Italy, Ireland, and Cyprus on negative watch. Following the EU summit held during the week ending December 9, Fitch concluded that a ‘comprehensive solution’ to the region’s debt crisis is ‘technically’ and ‘politically’ unreachable. According to the ratings agency: "Of particular concern is the absence of a credible financial backstop. In Fitch's opinion this requires more active and explicit commitment from the ECB to mitigate the risk of self-fulfilling liquidity crises for potentially illiquid but solvent Euro Area Member States”. Fitch also kept France’s ‘AAA’ rating alive, but now has a negative outlook over the long term.
Coming to sectoral stocks, energy stocks logged decent gains and the Energy Select Sector SPDR (XLE) was up 1.1%. As for the individual stocks, Chevron Corporation (NYSE:CVX), Marathon Oil Corporation (NYSE:MRO), Occidental Petroleum Corporation (NYSE:OXY), Suncor Energy Inc. (NYSE:SU) and Exxon Mobil Corporation (NYSE:XOM) gained 1.2%, 1.1%, 2.0%, 0.9% and 0.2%, respectively.
On the economic front, a report from the U.S. Bureau of Labor Statistics revealed that the Consumer Price Index for All Urban Consumers (CPI-U) remained unchanged in November. According to the report: “The index for all items less food and energy increased 0.2 percent in November following increases of 0.1 percent in each of the prior two months…The all items index has risen 3.4 percent over the last 12 months. This is a slightly smaller increase than last month’s 3.5 percent figure, as the 12-month change in the energy index declined from 14.2 percent to 12.4 percent”.