U.S. stocks surged today, extending gains from a day earlier, as signs of stabilization in Europe and better-than-expected consumer sentiment fueled investor optimism. We'll see how long this once again boy cries wolf new European positivity last.
Consumer sentiment levels moved higher in November as the consumer sentiment index for November hit 64.2, from 60.9 in October. The index was expected by economists to have hit 62.0.
Another great article by Kelly Evans of the Wall Street Journal. I read her excellent analysis everyday. Today she wrote about the potential problems of Turkey and Hungary.
Here are the top financial stories of the day:
1) Stocks jump after Italy passes economic reforms-From USA Today
Stocks surged Friday, erasing their losses for the week, after Italy and Greece moved closer to getting their financial crises under control. The Dow Jones industrial average jumped back above 12,000.
Italy's benchmark stock index jumped 3.7% and its borrowing costs plunged after the country's Senate passed a crucial austerity budget demanded by the European Union. Other European stock markets and the euro also pushed higher as investors became more confident that Italy would avoid a fiscal disaster.
The passage clears the way for Italian Premier Silvio Berlusconi to step down. Berlusconi was widely considered an obstacle to serious economic reforms. The yield on Italy's benchmark two-year bond dropped 0.43 percentage point to 5.69%. That's a sign bond investors think Italy will succeed in managing its massive debt load.
The Dow Jones industrial average jumped 259.89 points, or 2.2%, to 12,153.68. It closed below 12,000 the previous two days. Friday's rally pushed the Dow up 1.4% for the week.
Together with a 112-point gain the day before, the Dow has now made up most of the 389-point plunge it took on Wednesday. That sell-off was triggered by a spike in Italy's borrowing costs and a breakdown in talks to name a new prime minister in Greece.
In Greece, too, there was good news for the markets Friday. Lucas Papademos, a former central banker, was sworn in as interim prime minister. Lucas Papademos took over a coalition government after a two-week political crisis that jeopardized the country's ability to continue receiving emergency loans.
The S&P 500 rose 24.16, or 2.0%, to 1,263.85. Only 13 of the 500 stocks in the S&P fell. Technology and materials companies had the biggest gains. The Nasdaq composite rose 53.60, or 2.0%, to 2,678.75.
Plenty of uncertainty still hangs over financial markets. Brian Gendreau, senior investment strategist at Cetera Financial Group, noted that the VIX index is still above 30, a sign that traders expect stocks to stay volatile.
Gendreau expects the S&P 500 to trade in a range of 1,200 to 1,275 until Europe's debt crisis gets closer to resolution and the U.S. Congress signs off on a larger debt-cutting plan. A supercommittee in Congress has until Nov. 23 to agree on a deficit-reduction package of at least $1.2 trillion over a decade.
"We still don't have a real resolution on either side of the Atlantic," Gendreau said.
Walt Disney jumped 6%. The company reported record annual profits and revenues after the market closed Thursday, thanks to stronger advertising sales at ESPN and the Disney Channel.
In other corporate news:
•D.R. Horton returned to a quarterly profit as more people bought houses. But the builder's earnings and revenue fell below what analysts had expected. D.R. Horton's stock dropped 1.7%.
•Nordstrom also reported stronger quarterly profit late Thursday. But the retailer lowered its full-year profit outlook below what analysts expected. Its stock fell 0.3%.
•Viacom, the parent of Nickelodeon, said it will move its stock listing to the Nasdaq Stock Market from the New York Stock Exchange next month because it's more "cost effective." The company's class B stock rose 3%.
•E-Trade Financial sank 4.1%. The online broker said late Thursday that it had decided against putting itself up for sale. E-Trade's largest shareholder, the hedge fund Citadel Advisors, had been pushing for a sale.
U.S. bond trading was closed for Veterans Day.
Five stocks rose for every one that fell on the New York Stock Exchange. Volume was light at 3.3 billion shares.
2) Consumer sentiment rises on better outlook in November-From Reuters
U.S. consumer sentiment rose to its highest level in five months in early November as Americans felt better about the economic outlook, a survey released on Friday showed.
The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment rose to 64.2 from 60.9 the month before, topping the median forecast of 61.5 among economists polled by Reuters.
The survey's gauge of consumer expectations climbed to 56.2 from 51.8. While respondents were no more positive about the current state of the economy, they were less likely to expect it to worsen in the year ahead, the survey said.
The survey's barometer of current economic conditions nudged up to 76.6 from 75.1.
All three main indexes were at their highest level since June.
The view on the labor market was less pessimistic with 27 percent expecting unemployment to rise, down from 43 percent three months ago.
Consumers remained gloomy about their own finances with more respondents reporting their finances had worsened than improved. Just one in five consumers expected improvement in the year ahead.
Curtin said in a statement.
"Although improved, a renewed downturn in the economy still has an uncomfortably high probability of occurring."
Still, vehicle buying plans improved as 60 percent of consumers said buying conditions were favorable, helped by price discounts. Consumer spending accounts for about 70 percent of U.S. economic activity, making it crucial for a strong recovery.
"Things are better than they were a year ago and it normally takes these sentiment indicators time to turn around," said Steve Blitz, senior economist at ITG Investment Research in New York.
"Assuming the U.S. manages to avoid recession in the next six to nine months because of what's happening in Europe and what may be happening in China, I would expect this number to continue to improve."
Wall Street held on to gains immediately following the data, though investors were more focused on progress in the euro zone debt crisis as Italy moved to implement tough austerity measures.
The survey's one-year inflation expectation held steady at 3.2 percent, while the survey's five-to-10-year inflation outlook eased to 2.6 percent from 2.7 percent, its lowest since March 2009.
3) Eastern Europe Vulnerable in Debt Crisis-From The Wall Street Journal
The fretting over Turkey and Hungary has nothing to do with Thanksgiving.
These Eastern European nations are among the most exposed to a lending pullback by Europe's banks as the Continent's debt crisis enters a new phase, marked by the expected resignation of Italian Prime Minister Silvio Berlusconi. As pressure mounts on the banks to boost capital, ensuing asset sales may crimp lending to emerging markets and undercut their growth.
Regulators estimate European banks need to raise about €106 billion by the middle of next year as part of a recapitalization plan. And that is likely a conservative estimate as sovereign-debt markets worsen.
As Nomura Securities notes, another way to achieve that increase in capital ratios is to sell assets in the range of €1 trillion—which, while unlikely, "gives a sense of the large underlying pressure banks face to shed assets."
For now, banks are trying to avoid such aggressive sales, although most remain reluctant to pursue the most direct way to boost capital ratios: issuing new common equity. France's second-biggest bank, Société Générale, for instance, said Tuesday that it was scrapping its dividend and cutting bonuses to help meet capital targets after reporting weak third-quarter results.
But the reluctance to sell equity, which would lead to dilution of existing shareholders, makes asset sales more likely. And while euro-zone holdings comprise the bulk of these bank assets, they may first pare down foreign holdings. After the U.S. and U.K., the biggest portion of euro-zone bank assets—roughly €1 trillion—are in Eastern Europe, according to Nomura. Hungary's exposure is the region's largest, with loans held by Europe's banks amounting to about 37% of g
Taking a broader range of factors, like debt loads, currency reserves and trade, into account, Morgan Stanley reckons Turkey, Poland and Romania join Hungary as the emerging markets most vulnerable to a loss of European bank funding. Latin America and Asia, while more protected, also are at risk.
This is the real concern: any hit to these markets, whose growth has powered the global recovery, will only worsen Europe's outlook and its ability to service its debts. No wonder Europe's bondholders are losing their appetites.
Quote of the Day from Dave Ramsey.com:
Success is getting what you want. Happiness is wanting what you get. — Dale Carnegie
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