European debt concerns returned to haunt the markets and overshadowed strong corporate results to end the benchmarks’ three-day winning streak. An announcement by Spain’s autonomous region Valencia’s government that it was seeking financial aid reminded investors of the flagging condition of Europe’s economy. European debt concerns have taken a backseat over the past few days and earnings results hogged the limelight to lift benchmarks higher. However, it quite was the opposite case on Friday. Losses on Friday eroded the Dow’s and Nasdaq’s July gains, but all of the benchmarks maintained their weekly gains.
The Dow Jones Industrial Average (DJI) slumped 120.79 points or 0.9% and closed at 12,822.57. The Standard & Poor 500 (S&P 500) inched down 1% to finish Friday’s trading session at 1,362.66. The tech-laden Nasdaq Composite Index plunged 1.4% and was down to 2,925.30. The fear-gauge CBOE Volatility Index (VIX) gained 5.3% and settled at 16.27. Consolidated volumes on the New York Stock Exchange, the Nasdaq and the American Stock Exchange were 6.7 billion shares, matching the 50-day moving average. Declining stocks outpaced the advancers on the NYSE; as for 64% stocks that dropped, 33% stocks moved higher.
The headline that dominated the markets’ direction was the announcement by the Valencia region’s government that it would seek financial help from Madrid. The Valencia regional government stated: "Valencia, like in other autonomous regions, is suffering the consequences of the liquidity shortage in markets due to the economic crisis”. The region still has to repay €2.85 billion by year end. The news reminded investors’ about the lingering economic troubles of Europe.
Further, the Spanish government forecasted that the nation will have to continue to endure another year of recession in 2013. The Budget Minister Cristobal Montoro said gross domestic product (GDP) is now forecasted to contract by 0.5% in 2013 as against prior expectations of a growth of 0.2%. The news fuelled investors’ apprehensions about the economic situation and was reflected in the markets’ downfall. Spain’s equity benchmark was down 5.8% and the 10-year bond yields also sprung. Ripple effects were felt in the US too and markets suffered heavy losses on Friday.
The banking sector is usually most vulnerable to such developments. The KBW Bank Index (BKX) slumped 1.9% and stocks including Bank of America Corporation (NYSE:BAC), Citigroup, Inc. (NYSE:C), Morgan Stanley (NYSE:MS), Regions Financial Corporation (NYSE:RF) and SunTrust Banks, Inc. (NYSE:STI) dropped 2.6%, 2.7%, 3.6%, 3.6% and 3.0%, respectively.
The European debt woes overpowered another round of strong corporate figures. Markets had been enjoying an uptrend on most of the past few days, buoyed by encouraging earnings results. However, encouraging figures from companies including General Electric Company (NYSE:GE), Schlumberger Limited (NYSE:SLB) (1.0%) and Baker Hughes Incorporated (NYSE:BHI) did the little to help the indices on Friday. While General Electric and Schlumberger gained 0.4% and 1.0%, respectively, Baker Hughes jumped a sharp 9.2%. Also, SanDisk Corporation (NASDAQ:SNDK) surged 10.3% following second quarter results. The company gave a bright outlook going forward. Management believes that demands for mobile and SSD solutions will be higher, thus adding to revenues.
As mentioned earlier, the earnings surprises could not help benchmarks finish in the green. However, the benchmarks managed to hold onto the gains for the week. The Dow, S&P 500 and Nasdaq were up 0.4%, 0.4% and 0.6%, respectively.