S&P DOWNGRADE OF EUROPE IMMINENT. That was the headline all day.First, the scoreboard:
Dow: 12,422.1, -49.0, -0.4%
S&P 500: 1,289.1, -6.4, -0.5%
NASDAQ: 2,710.7, -14.0, -0.5%
And now, the top stories:
- Shortly before the U.S. markets opened, Dow Jones reported that S&P would soon downgrade multiple eurozone countries. More media outlets confirmed various rumours regarding the downgrades of France, Italy, Portugal, Slovakia and Austria. France’s Finance minister eventually confirmed it would be downgraded from AAA to AA+. Most sovereign yields ticked up except for those of Germany, which is reportedly dodging the downgrades. The euro tumbled to a $1.26 handle, a 16-month low. Here’s Why France Lost Its AAA Rating >
- The market reaction probably would’ve been much worse if most people hadn’t already anticipated and priced in the probability of the downgrade. S&P warned about this just over a month ago. Nevertheless, downgrade chatter dominated the headlines. It also took attention away from a successful Spanish debt auction and decent Italian debt auction.
- One headline that probably should’ve gotten more attention came out of Greece. Specifically, it’s been reported that Greek debt swap talks are falling apart, increasing the likelihood of a hard default.
- In economic news, the U.S. trade deficit widened to $47.8 billion. Michigan consumer sentiment jumped to 74, beating expectations of 69.9. Bank Of America’s Michelle Meyer’s Housing Outlook For 2012 >
- It was a risk-off trade this morning with sell-offs in most asset classes including stocks and commodities. Orange juice prices rallied, but Florida’s state fruit is facing its own specific issues regarding fungus. Steel stocks including AK Steel and U.S. Steel were among the weakest stocks in the S&P 500.
- The financial sector stocks also fell significantly. JP Morgan was the first of the big banks to announce its quarterly financial results. EPS fell to $0.90, which was in line with expectations. But the bank reported weaker-than-expected revenue on sharp declines in investment banking and fixed-income trading activities. Peers Bank of America and Citigroup saw similar stock price declines.
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