On Monday, the Dow logged its best performance in a month and the markets ended their seven-day losing streak to end substantively higher, spurred by robust Black Friday weekend sales and hopes of a resolution to the European debt crisis. Financials and retailers posted strong gains and all of the 30 Dow components ended in the green.
Breaking the trend of continuous losses, markets reversed their course as the Dow Jones Industrial Average (:DJIA) leapt 291 points or 2.6% to settle at 11,523.01. The Standard & Poor 500 (S&P 500) ended higher at 1,192.55, surging 2.9%. The Nasdaq Composite Index gained 3.5% and closed the day at 2,527.34. The fear-gauge CBOE Volatility Index (:VIX) shed almost 7% to hover over 32. It was another day of low volumes as the consolidated volumes on the New York Stock Exchange, Amex and Nasdaq were 6.8 billion shares, significantly lower than the daily average of 8 billion shares. On the NYSE, advancers outdid the decliners by a ratio of 2,657 to 518.
Meanwhile, record Black Friday weekend shopping took retailers higher on Monday and also helped the broader rally. Retail data and consulting firm ShopperTrak confirmed a 6.6% hike in sales on Black Friday, reflecting a significant increase in the number of shoppers going to the stores or hitting the ‘buy’ button on retailer websites. According to The National Retail Federation, a record breaking 226 million shoppers hit stores and websites over the Black Friday weekend, jumping from 212 million last year. Major retailers reported a 16% spike in sales figures over the weekend and companies like Macy's, Inc. (NYSE:M), J. C. Penney Company, Inc. (NYSE:JCP), Costco Wholesale Corporation (NASDAQ:COST), Best Buy Co. Inc. (NYSE:BBY), Limited Brands, Inc. (NYSE:LTD) and Amazon.com Inc. (NASDAQ:AMZN) surged 4.7%, 1.6%, 1.7%, 3.4%, 3.9% and 6.4%, respectively.
Lingering European debt concerns receded somewhat yesterday with positive reports about efforts to find a solution to debt woes doing the rounds. An Italian newspaper reported that the International Monetary Fund was considering stepping in with a rescue fund for Italy, whose borrowing costs crossed the highly unsustainable 7% level. However, chances of such a development were washed away as IMF denied the report.
Separately, the finance ministers of the troubled region were considering new measures to tackle the debt situation. Some proposals went to the extent of suggesting that nations give up budgetary controls to a central European body. Also, it was suggested that nations such as Austria, France and Germany sell bonds in cooperation to aid other ailing European nations.
Investor sentiment was boosted by rare positive developments from the European front and record retail numbers. The financial sector was another major gainer yesterday and Financial Select Sector SPDR (NYSEArca:XLF - News) fund gained roughly 3% with the KBW Bank Index (Toronto:BKX.TO - News) surging 2.7%. Stocks including Bank of America Corporation (NYSE:BAC), The Goldman Sachs Group, Inc. (NYSE:GS), Morgan Stanley (NYSE:MS), JPMorgan Chase & Co. (NYSE:JPM), Citigroup, Inc. (NYSE:C), Wells Fargo & Company (NYSE:WFC) and U.S. Bancorp (NYSE:USB) jumped 1.6%, 2.3%, 4.1%, 2.4%, 6.0% and 2.7%, respectively.
However, there were impending concerns that were not factored in yesterday as benchmarks chose to change course after its considerable long-streak of losses. The borrowing costs of European nations that include Italy, Spain, France and Germany are riding an uptrend, which is not at all a good sign for the economies. Italian 10-year yield is hovering around the unsustainable 7% level and Spanish bonds are also in close range. Also, the Organization for Economic Cooperation and Development (:OECD) said EU leaders’ failure to fix the debt woes "could massively escalate economic disruption." The disruption might lead to "highly devastating outcomes,” the OECD added. Moody's Investors Service also echoed the warning saying the debt crisis might "soon enter a phase that policy makers are unable to control".
Meanwhile, after the closing bells, Fitch Ratings lowered its outlook on the US credit rating and gave a 2013 deadline for the US to ink a “credible plan" to counter its incremental budget deficit. The rating agency kept the AAA credit rating alive, but lowered its outlook to negative from stable following the nation’s failure to arrive at a decision on the $1.2 trillion deficit-reduction plan. The rating agency stated: "The negative outlook reflects Fitch's declining confidence that timely fiscal measures necessary to place U.S. public finances on a sustainable path and secure the U.S. AAA sovereign rating will be forthcoming”.
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