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 side.
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:AXP), Citigroup Inc. (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM), Morgan Stanley (NYSE:MS) and U.S. Bancorp (NYSE:USB) jumped 1.1%, 3.2%, 2.7%, 2.2% and 1.8%, respectively.
Meanwhile, after hovering near a12-year high, Wal-Mart Stores, Inc. (NYSE:WMT) jumped 3.6% on Friday, ultimately reaching a 12-year high. As for other retailers, Dollar General Corp. (NYSE:DG), Family Dollar Stores, Inc. (NYSE:FDO), Target Corporation (NYSE:TGT) and Macy's, Inc. (NYSE:M) 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.