What a surprise after yesterday's celebration about the European crisis supposedly being fixed for the umpteenth time-Stocks end mixed as traders turn a skeptical eye to Europe's plan to contain its debt crisis.
On average, consumers put 3.6% of their hard-earned dough into savings in September, the government reported Friday. It marks the lowest level of saving since December 2007, when consumers stashed away only 2.6% of their income.
Like a consumer with a bad credit score who has to pay a high interest to get a loan, so does Italy due to their unwillingness to cut their debt.
Here are the top financial stories of the day:
1) Stocks finish mixed after Thursday's big rally-From the AP
A quiet day on Wall Street ended Friday with major stock indexes little changed after a big rally the day before.
The Dow Jones industrial average gained 23 points, or 0.2 percent, to finish at 12,231.11. Stock indexes jumped more than 3 percent Thursday after European leaders unveiled a plan to expand their regional bailout fund and take other steps to contain the debt crisis in Greece.
Optimism ebbed on Friday as analysts raised questions about the plan, which left out many key details about how the fund would work. European markets mostly fell, and the euro declined against the dollar.
The S&P 500 rose less than a point to 1,285.09. The Nasdaq composite fell 1.48, or 0.1 percent, to 2,737.15.
"It's a kind of sobering-up after a day of partying," said Jerry Webman, chief economist with Oppenheimer Funds in New York. "We got back to what's more of a square position, closer to where we want to be, and now we're going to take a couple of deep breaths and reassess what this really means."
There are still plenty of obstacles to overcome before the crisis is resolved. One troubling sign: Borrowing costs for Italy and Spain increased, signaling that traders remain worried about their finances.
The Dow is up 12.1 percent this month, the S&P 13.6 percent. Both indexes are on pace to have their best month since January 1987.
In less than four weeks, the Dow has risen 14.8 percent from its 2011 low, reached on Oct. 3. The S&P has gained 17 percent in that time. However, the Dow remains 4.5 percent below this year's high, reached on April 29. The S&P is 5.8 percent below its high.
Whirlpool Corp. slumped 14 percent, the most in the S&P index, after the appliance maker said it would cut 5,000 jobs, citing weak demand and higher costs for materials. Another household name,
Newell Rubbermaid Inc., soared 11 percent after its adjusted earnings beat Wall Street's expectations. The maker of tubs and markers maintained its outlook for the year.
Cablevision Systems Corp. fell 12.5 percent after reporting that its third-quarter net income dropped sharply and it lost cable TV subscribers.
Thursday's stock rally led to a sell-off in Treasurys, which traders hold to protect their money when other investments are falling. Demand for Treasurys increased sharply Friday, pushing the yield on the
10-year Treasury down to 2.33 percent from 2.39 percent late Thursday.
Markets have been roiled for months by fears about the impact of Europe's debt crisis. Greece couldn't afford to repay its lenders, and banks holding Greek bonds faced billions in losses. A disorganized default by Greece threatened to spook lenders to other countries with heavy debt loads such as Spain and Italy. Traders feared that a wave of defaults by countries would cause financial panic and mire the global economy.
Some analysts expect traders to refocus on U.S. economic news next week after months spent watching Europe. The government releases its jobs report for October next Friday. A news conference by Federal Reserve Chairman Ben Bernanke might offer clues about the Fed's economic outlook. Key reports on manufacturing and business sentiment are due out as well.
Declining stocks narrowly outnumbered rising ones on the New York Stock Exchange. Volume was slightly below average at 4.4 billion shares.
2) The Next Worry for Markets: No Deal Yet on US Debt-From CNBC
Wall Street might want to enjoy the rally over Europe's debt agreement while it lasts, because another debt crisis is still looming closer to home.
The euro zone crisis had been recently overshadowing the debates in Washington over how to rein in America's debt, whose rapid growth triggered a downgrade to the US credit rating in August and sparked a market selloff.
But with Europe apparently settled for now, a supercommittee of Democratic and Republican leaders is likely to regain Wall Street's focus, and should the group fail to come up with a debt solution acceptable to ratings agencies, the summertime scenario could play out once again.
"We fear that the so-called 'Super Committee' of both Republicans and Democrats that has been charged with putting for a credible and material deficit reduction program will do nothing of the sort and will end up falling apart because of bilateral bickering," Dennis Gartman, hedge fund manager and author of The Gartman Letter, wrote Friday. "The committee has a Nov. 23 deadline, and from the discussions and rumours thus far there is no chance that anything credible shall be put forth by that date."
Right now, investors are merely hoping that the deficit panel can agree on a bare minimum of cuts to deal with the nation's nearly $15 trillion debt load.
"They're only looking for a trillion in savings," says Keith Springer, president of Springer Financial Advisors in Sacramento, Calif. "They don't do anything unless there's a gun to their head. They'll come through with the bare minimum, which will be a boost to the market and prevent another downgrade."
Not everyone, though, is quite so convinced.
Analysts at Bank of America Merrill Lynch have said in recent days that another credit downgrade, similar to the one from Standard & Poor's that triggered a 500-point one-day selloff in the Dow industrials, is possible before the end of the year.
S&P's move came in reaction to Washington's inability to meet the rating agency's target for deficit reduction. Should the supercommittee come up short - and the indications in the early sessions are not favorable - the good feelings over Europe's crisis resolution could dissipate quickly.
"In many ways, the supercommittee is damned if they do and damned if they don't," says Quincy Krosby, market strategist at Prudential Financial in Newark, N.J. "If they come out with the cuts and it indicates that what we're going through now is just a positive bump and we're going to to back to weakening, there are going to be questions about the growth rate in the country."
Indeed, the U.S. faces much the same debt challenges as Greece, even though the latter and its southern European peers face debt burdens relative to gross domestic product that are much more severe than the situation Washington confronts.
But addressing those burdens requires cutbacks, which in turn could inhibit economic growth. That would come at an especially ticklish time for the U.S., where recent data has indicated that the country may defy predictions for a new recession just two years after the end of the last one.
Despite persistently high unemployment and a flatlining housing market, gross domestic product grew 2.5 percent in the third quarter and earnings have done well for the quarter.
But Europe actually labors under a higher probability of recession, and should cutbacks slow growth dramatically it will be hard to prevent contagion to the U.S.
"While the plans represent a step forward, we suspect that they will soon be viewed in the same way as every other policy response during this crisis - as too little, too late," Jonathan Loyes, at Capital
Economics in London, wrote in a note to clients. "We still expect the crisis to prompt a prolonged recession in the euro-zone, further turmoil in global financial markets and, at some point, the end of the euro itself in its current form."
That raises concerns, then, that U.S. investors may get getting too sanguine about a resolution to the euro debt crisis and making large bets - as evidenced by the market surge Thursday - that the crisis is in the rear-view mirror.
Like a football team that had just scored a touchdown and taking turns spiking the football in the end zone, strategists said the only direction for the market was higher.
"This European Union agreement is going to be a game changer," says Gary Hager, president of Integrated Wealth Management in Edison, N.J. "This is huge technically. The market might be a little stretched short-term, but we've clearly broken out of the consolidation to the upside."
Hager believes the market is well on its way to setting a new all-time high that would take it past its 14,198 Dow level in October 2007.
"This is as clear a green light for rising equity values as I've seen since the break in 2008," he says.
"This was like a cake that was baked great. This came out of the oven very nicely."
3) Savings rate falls to lowest level since 2007- From CNN Money
The good news is, a recent pick-up in consumer spending is fending off fears of another U.S. recession.
The bad news is, it's coming at the expense of Americans' savings.
On average, consumers put 3.6% of their hard-earned dough into savings in September, the government reported Friday. It marks the lowest level of saving since December 2007, when consumers stashed away only 2.6% of their income.
But deciphering the meaning of the savings rate is a tricky business.
On one hand, many economists had hoped the Great Recession would spark a newfound period of thrift and frugality, lessening consumers' vulnerability to financial shocks in the future. (The recession did have this effect for a while, sending the savings rate as high as 7.1% in mid 2009.)
On the other hand, American businesses have argued that without an increase in demand for their products, there's no incentive for them to create more jobs. If consumers continue to save rather than spend their money, why should the restaurant down the street, the local big-box retailer or even large American manufacturers ramp up their hiring?
On Thursday, the government's latest report on U.S. economic growth showed that since July, consumers have started to slow down the amount they add to their savings, to ramp up their spending more instead.
Adjusted for inflation, consumer spending rose 2.4% in the third quarter.
That was not only strong enough to boost overall economic growth in the recent quarter, it also led some economists to boost their forecasts for fourth quarter growth.
But at the same time, others are reluctant to carry their optimism into their 2012 forecasts.
Mark Vitner, a senior economist at Wells Fargo, points out that the increase in spending has come even as consumers saw their disposable income fall 1.7% in the third quarter (adjusted for inflation and taxes).
"The sluggish income growth cast doubts on how sustainable the pickup in economic growth is," he said. "Without an increase in income, consumers can't afford to keep increasing their spending at the the pace that they have."
4) Italy Pays Higher Yields at Debt Sale-From Wall Street Journal
Italy paid higher yields Friday than at corresponding previous auctions to sell €7.94 billion in four government bonds as the initial rally in peripheral debt after the European Union's summit seems to be running out of steam amid implementation risks.
"Today's auction was not very satisfying," said Newedge economist Annalisa Piazza. "Although the EU Summit welcomed the new measures the [Italian] government is planning to implement in the next eight months to 'change' the Italian economy, markets remain skeptical about the outcome," she said.
Italy offered up to €7.5 billion in three nominal BTPs, maturing in 2014, 2019 and 2022, and up to €1 billion in a floating rate bond, or CCTeu, maturing in October 2017.
It paid higher yields on all bonds than previously but in the most worrying sign, it paid 6.06% against 5.86% a month ago to sell the BTP 5% March 2022, the current 10-year benchmark.
"In an environment, where barely any economic growth looks uncertain, paying an interest rate of more than 6% does not look very encouraging from the perspective of debt sustainability," said Jan von Gerich, chief analyst at Nordea.
Italy paid a yield of 4.93% on the BTP July 2014, up from 4.68% previously.
Bid-to-cover ratios, a key gauge of investor demand, remained subdued for the BTPs, with the 1.27 figure on the BTP March 2022 being low even by Italian standards. Coverage ratios on BTPs have recently been capped at 1.5.
Bund futures rose after the results came out and Italian yields moved higher.
Thursday morning European leaders agreed on a writedown of Greek debt, increased the firepower of the European Financial Stability Facility by up to five-fold and reached a deal on recapitalizing banks.
Euro-zone governments have also decided to be more pro-active in dealing with their deficits, while Italy announced a number of growth-boosting reforms and an increase of the retirement age.
Initial market reactions suggested the agreement represents a good start in the right direction but misses key details, and thus runs the risk of not being carried out.
Anja Mikus, head of portfolio management at Union Investments, said Italy's newly announced reform efforts are so far "only a declaration of intent," not a concrete decision, adding that "there are still some implementation risks."
Quote of the Day from Dave Ramsey.com:
Psalm 118:24 — This is the day the Lord has made; let us rejoice and be glad in it.
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