Stocks rose today as hopes of an improving labor market and clarification about France's AAA credit rating buoyed investor sentiment. Also Italy's bond yields fell below 7%.
For the first time since April 2011, initial unemployment claims came in at 390,000 after 397,000 were expected. This is the second week in a row under 400,000.
Very interesting article on the stock market trends>Is it 1973 all over again?
Here are the top financial stories of the day:
1) Easing Italian bond yields lift futures-From Reuters
Stock index futures rose on Thursday, indicating the S&P 500 may bounce back from its worst day since mid-August as Italian bond yields eased.
Traders said the European Central Bank increased its bond buying, but the ECB's hard-line chief economist told governments not to expect the bank to rescue them with unlimited funds. A pullback in Italian bond yields helped support market sentiment.
Italy paid its highest yield in 14 years to sell 12-month debt on Thursday, and although there was relief the sale went smoothly, worries remained that Italy's borrowing costs were unsustainable.
"We are having a little bit of a bounce. The fact that Italy managed to sell its debt under 7 percent at 6.9 percent is easing some fears after the rates climbed above 7 percent yesterday," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.
"There are hopes this political crisis in Italy will soon be solved."
Former European Commissioner Mario Monti has emerged as the favorite to replace Silvio Berlusconi and form a new government.
Italy, the region's third-largest economy, has replaced Greece at the center of the European debt crisis storm, with the country's borrowing costs at unsustainable levels and Europe unable to afford a bailout.
European shares rose 0.5 percent in choppy trade, while Asian stocks fell on fears over Europe. and (.EU)
S&P 500 futures rose 14 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration of the contract. Dow Jones industrial average futures climbed 106 points, while Nasdaq 100 futures gained 26.25 points.
The S&P 500 saw its worst daily percentage drop since August 18 on Wednesday. All 10 S&P sectors closed down, with S&P financials (.GSPF) the hardest hit.
Cisco Systems Inc (NasdaqGS:CSCO) jumped 6.6 percent to $18.78 in premarket trade after the world's biggest networking equipment maker forecast revenue and earnings above expectations for its fiscal second quarter.
After the closing bell, Walt Disney Co (NYSE:DIS) and Nvidia Corp (NasdaqGS:NVDA) are due to post quarterly results.
Disney will seek to reassure Wall Street that global economic woes have not hurt its nearly $11 billion parks and resorts business or held back an advertising rebound at ESPN and its other cable networks.
First-time claims for jobless benefits for the week ended November 5 and import-export prices for October from the Labor Department are due at 8:30 a.m. EST (1330 GMT). Economists in a Thomson Reuters survey forecast a total of 400,000 new filings, compared with 397,000 in the prior week.
Also at 8:30 a.m (1330 GMT), the Commerce Department releases September international trade figures.
2) Jobless claims fall, September trade gap narrows-From Reuters
New U.S. claims for unemployment benefits fell last week to their lowest since early April and the trade deficit unexpectedly shrank in September, pointing to a slight improvement in the economy.
The Labor Department said initial claims for state unemployment benefits fell for the second straight week, down 10,000 to a seasonally adjusted 390,000.
The U.S. labor market is still a long way from recovering from the deep 2007-2009 recession, but analysts said the data at least reinforced the view that the healing process was continuing.
"Clearly, the labor market is improving, but at a very slow pace," said Omer Esiner, chief market strategist at Commonwealth Foreign Exchange in Washington.
In a separate report, the Commerce Department said the seasonally adjusted U.S. trade deficit shrank to $43.1 billion in September.
That was its narrowest since December thanks to record-high exports and suggests the U.S. economy closed the third quarter a little stronger than many expected.
Also, imports from China fell 2.5 percent from a month earlier, although that reading was based on non-seasonally adjusted figures.
Prices for U.S. government debt extended losses on the claims and trade data.
Investors remain focused on the unfurling debt crisis in Europe, which economists say could easily send the United States back into recession.
Weekly jobless claims still remain well above pre-recession levels and have dipped below 400,000 -- a threshold many economists believe signifies improving labor market conditions -- only 10 times over the past year.
A Labor Department official said a freak fall snowstorm that kept many people housebound in the Northeast did not affect initial jobless claims.
3) Is it 1973 all over again? From Market Watch
Wednesday’s bad break has the bears bugalooing. But one judicious bull is standing firm.
A really scary comment from Elliott Wave Theorist’s Bob Prechter: “In my judgment, the situation is very like that of 1973. …The market has been in a two-year bear market rally, per our interpretation of the Elliott Wave model; and a broad bullish consensus had developed on stocks, recalling January 1973’s ‘Not A Bear Among Them’ headline from Barron’s.”
“In 1973, the stock market topped in January and was weak into August; then it rallied hard right through September and October, statistically the two most bearish months of the year. It was a convincing rally and optimism returned. That rally ended on Oct. 31, leaving the ‘bear months’ in the dust.
But instead of continuing higher, the market turned lower, and in just a month plunged below its August low. November is usually a benign month, but that year it wasn’t…”
Prechter was quick to add: “None of this PROVES anything. Today’s huge intraday TICK and TRIN [two technical indicators] numbers, in fact, would usually be associated with a near-term bottom, so there is plenty of room for uncertainty. But the main exception to that tendency occurs at the kickoffs of major declines, and that’s how the waves seem to be positioned.”
A whole generation of investors has grown up thinking Prechter has always been bearish. But this has not always been so, and anyway the Crash of 2008 (after which his letters were briefly bullish) nearly got him onside. (See Oct. 13 column.)
Dennis Slothower of Stealth Stock Daily Alert, who also dodged the Crash of 2008, isn’t always bearish either. But bearishness has worked for him this year. (See Oct. 6 column.).
He said flatly last night: “Given the horrible developments in Europe and the chaos we are likely to see in the next few weeks as details emerge from the ‘Super Committee,’ it would not surprise me to see a 50% or 61.8% retracement off the October rally, which would be another 4%-6% drop from here.”
Slothower is currently 100% in cash.
But Cabot Market Letter, which has shown itself to be wedded to neither side of the market, is not yet ready to give up on its recent bullishness. (See Sept. 29 column.).
It wrote last night: “We’re not downplaying today’s action, which did plenty of damage and, if nothing else, is a warning shot. But, as extreme as it was, today didn’t change the general market picture — the market is still attempting to repair the damage from the August-to-early-October crash, but remains as news-driven and volatile as we can remember. There’s been enough evidence to put a few lines in the water, but no money is being made on the long side (unless you’re a day trader), which argues for holding a good chunk of cash. We still have about 50% cash in the Model Portfolio, and today is a good reason why.”
“Overall, we still think that a 50-50 approach (about half in, half out of the market) is prudent. If today ends up being the start of a new leg down, we’ll back off and raise even more cash. But if the market and leaders hang in there and eventually get going on the upside, we’ll extend our line. For now, though, we’ll sit tight and see what comes.”
Quote of the Day from Dave Ramsey.com:
...failing doesn't make you a failure. Giving up, accepting your failure, refusing to try again, does! — Richard Exley
Thursday, November 10, 2011
Wednesday, November 9, 2011
Financial Headline News for Wednesday 11/9
Once again Europe caused the stock market to tank today. Italian bond yields rose to a record high of over 7% and US bank stocks fell big in this awful trading session.
More bad housing data was released today as the median price for previously occupied homes sold in the July-to-September quarter declined when compared with last year in 111 out of 150 metro areas tracked by the National Association of Realtors.Prices rose in just 39 metro areas.
GM's stock slumped as much as 10%, despite third-quarter earnings beating the consensus forecast. The reason for the sell-off was weak guidance for the current quarter, which implied earnings about 40% below the Wall Street consensus.
Here are the top financial stories of the day:
1) Wall Street plunges as European debt plight worsens-From Reuters
Stocks tumbled 3 percent on Wednesday in the market's worst day since mid-August as a spike in Italian bond yields signaled the European debt crisis had worsened.
All 10 S&P sectors were down, but S&P financials were the hardest hit on worries about European exposure, dropping 5.4 percent.
U.S. stock markets have grown more chaotic in response to rising volatility in European debt markets, and investors have trouble keeping up with a steady stream of headlines and pricing in how the crisis might play out.
"The market has turned into a derivative of what's happening in Europe," said Craig Hodges, president at Hodges Capital Management in Dallas, Texas.
The Dow Jones industrial average was down 389.24 points, or 3.20 percent, at 11,780.94. The Standard & Poor's 500 Index was down 46.82 points, or 3.67 percent, at 1,229.10. The Nasdaq Composite Index was down 105.84 points, or 3.88 percent, at 2,621.65.
Dominating market moves are day traders and "people trying to capture and skim decimals off stocks," Hodges said.
The spread of the crisis to Italy has lifted it to a new level. European Union sources said German and French officials were discussing drastic plans, including an overhaul that would possibly create a smaller euro zone.
Italy's bond yields shot up to 7.502 percent, a new high since the euro was introduced in 1999. Investors were forced to sell Italian bonds after a European clearing house increased the collateral needed to borrow against that debt.
The 7 percent level was the point where European nations, including Ireland and Portugal, had to seek bailouts as their financing costs ballooned.
General Motors Co slid 10.9 percent to $22.31 after the automaker said it would not break even for the year in Europe, as it had forecast, due to deteriorating conditions in the region.
The S&P 500 saw its worst daily percentage drop since August 18.
Prime Minister Silvio Berlusconi's insistence on elections instead of an interim government raised concerns of prolonged instability and delays to economic reform.
Italy has replaced Greece at the center of the euro zone debt crisis and is seen teetering on the cusp of requiring a bailout. A deal on forming a Greek national unity government collapsed while economic turmoil continued.
Reflecting growing market anxiety, the CBOE Volatility Index VIX jumped more than 30 percent, its biggest daily percentage gain since mid-August. The index usually moves inversely to the S&P 500 as traders use it as a hedge against falling stocks.
"Italian bonds are essentially serving as another fear index like the VIX, and right now they're reflecting a lot of fear," said Charles Reinhard, deputy chief investment officer at Morgan Stanley Smith Barney in New York.
Among bank stocks, Morgan Stanley fell 9 percent to $15.76. Goldman Sachs Group Inc dropped 8.2 percent to $99.67. Bank of America Corp lost 5.7 percent to $6.16.
2) Home Prices Keep Dropping-From The Wall Street Journal
U.S. home prices fell in nearly three-quarters of metropolitan areas in the third quarter and the national median price dropped 4.7% as the housing market continued to show weakness.
The median price for previously occupied homes sold in the July-to-September quarter declined when compared with last year in 111 out of 150 metro areas tracked by the National Association of Realtors, the trade group said Wednesday. Prices rose in 39 metro areas.
The results were roughly even with the second quarter, in which median prices fell in 109 out of 151 cities tracked by the real estate trade association.
The national median price for single-family homes sold in the third quarter fell to $169,500 from the same quarter a year earlier.
With the economy weak and many Americans reluctant to commit to a home purchase, the housing market has been slow to recover from the worst downtown in decades. The Realtors' group said last month that the number of people who signed contracts to purchase previously occupied homes in the U.S. sank in September to the lowest level in five months.
The Realtors' latest report showed sales of homes in the third quarter were up 17% from a year earlier, a period in which sales dropped off due to the expiration of a federal tax credit. They were down 0.1% from the second quarter.
"Home sales need to recover first, only then can prices stabilize," said Lawrence Yun, the Realtors' chief economist, in a statement.
The metro areas showing the biggest decline in median prices from a year earlier were Mobile, Ala. (-17.7%), Phoenix (-17.6%), Allentown, Pa. (-17.5%) and Salt Lake City (-15.3%). Areas where prices rose included Grand Rapids, Mich. (23.7%), South Bend, Ind. (19.8%), Palm Bay-Melbourne, Fla. (17.7%) and Youngstown, Ohio (13.1%).
3) GM reports $1.7B third-quarter profit, down 15%-From USA Today
Almost a year to the day since going public on Nov. 18, 2010, General Motors reported third-quarter earnings down 15% from last year ago to $1.7 billion.
The profit works out to $1.03 per share vs. $1.20 a year ago. The net profit was down, even though total revenue in Q3 was up 7.6% to $36.7 billion.
Struggling GM Europe again lost money -- $292 million -- after turning a small operating profit earlier this year. But the loss was nearly 50% less than the third quarter a year ago. The division has been mostly in the red since 2000.
Investors beat down GM shares 11% (in a market down about 3%) -- much of it on worries about GM's exposure to Europe's current chaos and the company's comments today: It no longer expects to meet its earlier target for GM Europe of breaking even for the full year before restructuring costs.
But the General made a $2.2 billion operating profit in its key North America market, up $100 million. Gm International Operations (which includes Asia) had earnings of $365 million, down from $559 million a year ago. And GM South America lost $44, down from a $163 million profit a year ago.
Overall, GM sold 2.2 million vehicles in Q3, up 9%, led by strong global sales for its Cruze compact, as well as stronger sales for its big pickups and continued hot sales for its small crossovers in the U.S.
GM was able to capitalize on the production cuts by tsunami-hit Japanese rivals to raise its U.S. market share to 20.1% from 18.6% in the quarter a year ago. CFO Dan Ammann told reporters this morning, "We had revenue growth year over year; we have (market) share growth year over year … customers are obviously seeing the value of the vehicles that we have in the market,"
That also let GM maintain sales while cutting incentive spending in Q3 by 15.5%, according to Edmunds.com. "General Motors benefited from Japanese automaker struggles in the third quarter, and they were able to boost market share while cutting back on incentive spending," says Edmunds.com senior analyst Jessica Caldwell. But "with their Japanese competitors re-emerging, GM will have a tougher fight on their hands in the coming months against refreshed and redesigned offerings like the Toyota Camry and Honda Civic."
While GM continues to post profits, CEO Dan Akerson wants to do much better on it profit margins -- which might also improve a languishing share price (and let taxpayers get back a little more of the bailout money -- see below).
GM's margins are currently about 6%, which puts it back in the pack among major automakers. The most profitable are closer to 8%.
"GM delivered a solid quarter thanks to our leadership positions in North America and China, where we have grown both sales and market share this year. But solid isn't good enough, even in a tough global economy," Akerson said today in a statement. "Our overall results underscore the work we have to do to leverage our scale and further improve our margins everywhere we do business."
Added Ammann this morning, "We plan actions everywhere to improve our margins. This is not just a cost exercise: This is about improving the sustainable profitability of our business."
That might also help boost GM's share price, which, despite the profits of the past year, are down about a third since the IPO.
"More than anything else, GM's stock performance is a victim of its own early success," says Edmunds.com CEO Jeremy Anwyl. "The hype leading up to last year's IPO was about as well-scripted as you can get. GM lined up institutional investors ahead of time and began a steady drumbeat of good news about 45 days ahead of time. But because of tempered overall expectations in the automotive market this year, investors were skeptical of all automotive stocks."
Shares went out at $33 in the IPO last year. They closed Tuesday at $25.04, and were down $2.73, or 11%, to close at $22.31. That was bad news for taxpayers: The U.S. Treasury still holds about 26% of the company, a stake it has said it intends to sell as soon as possible and prudent. But it would need to be able the remaining stake for about $53 a share for taxpayers to break even on the nearly $50 billion GM bailout.
GM was the last Detroit automaker to report third-quarter results: Chrysler posted a $212 million profit, and Ford, a $1.6 billion net profit.
Quote of the Day from Dave Ramsey.com:
What we plant in the soil of contemplation, we shall reap in the harvest of action. — Meister Eckhart
More bad housing data was released today as the median price for previously occupied homes sold in the July-to-September quarter declined when compared with last year in 111 out of 150 metro areas tracked by the National Association of Realtors.Prices rose in just 39 metro areas.
GM's stock slumped as much as 10%, despite third-quarter earnings beating the consensus forecast. The reason for the sell-off was weak guidance for the current quarter, which implied earnings about 40% below the Wall Street consensus.
Here are the top financial stories of the day:
1) Wall Street plunges as European debt plight worsens-From Reuters
Stocks tumbled 3 percent on Wednesday in the market's worst day since mid-August as a spike in Italian bond yields signaled the European debt crisis had worsened.
All 10 S&P sectors were down, but S&P financials were the hardest hit on worries about European exposure, dropping 5.4 percent.
U.S. stock markets have grown more chaotic in response to rising volatility in European debt markets, and investors have trouble keeping up with a steady stream of headlines and pricing in how the crisis might play out.
"The market has turned into a derivative of what's happening in Europe," said Craig Hodges, president at Hodges Capital Management in Dallas, Texas.
The Dow Jones industrial average was down 389.24 points, or 3.20 percent, at 11,780.94. The Standard & Poor's 500 Index was down 46.82 points, or 3.67 percent, at 1,229.10. The Nasdaq Composite Index was down 105.84 points, or 3.88 percent, at 2,621.65.
Dominating market moves are day traders and "people trying to capture and skim decimals off stocks," Hodges said.
The spread of the crisis to Italy has lifted it to a new level. European Union sources said German and French officials were discussing drastic plans, including an overhaul that would possibly create a smaller euro zone.
Italy's bond yields shot up to 7.502 percent, a new high since the euro was introduced in 1999. Investors were forced to sell Italian bonds after a European clearing house increased the collateral needed to borrow against that debt.
The 7 percent level was the point where European nations, including Ireland and Portugal, had to seek bailouts as their financing costs ballooned.
General Motors Co slid 10.9 percent to $22.31 after the automaker said it would not break even for the year in Europe, as it had forecast, due to deteriorating conditions in the region.
The S&P 500 saw its worst daily percentage drop since August 18.
Prime Minister Silvio Berlusconi's insistence on elections instead of an interim government raised concerns of prolonged instability and delays to economic reform.
Italy has replaced Greece at the center of the euro zone debt crisis and is seen teetering on the cusp of requiring a bailout. A deal on forming a Greek national unity government collapsed while economic turmoil continued.
Reflecting growing market anxiety, the CBOE Volatility Index VIX jumped more than 30 percent, its biggest daily percentage gain since mid-August. The index usually moves inversely to the S&P 500 as traders use it as a hedge against falling stocks.
"Italian bonds are essentially serving as another fear index like the VIX, and right now they're reflecting a lot of fear," said Charles Reinhard, deputy chief investment officer at Morgan Stanley Smith Barney in New York.
Among bank stocks, Morgan Stanley fell 9 percent to $15.76. Goldman Sachs Group Inc dropped 8.2 percent to $99.67. Bank of America Corp lost 5.7 percent to $6.16.
2) Home Prices Keep Dropping-From The Wall Street Journal
U.S. home prices fell in nearly three-quarters of metropolitan areas in the third quarter and the national median price dropped 4.7% as the housing market continued to show weakness.
The median price for previously occupied homes sold in the July-to-September quarter declined when compared with last year in 111 out of 150 metro areas tracked by the National Association of Realtors, the trade group said Wednesday. Prices rose in 39 metro areas.
The results were roughly even with the second quarter, in which median prices fell in 109 out of 151 cities tracked by the real estate trade association.
The national median price for single-family homes sold in the third quarter fell to $169,500 from the same quarter a year earlier.
With the economy weak and many Americans reluctant to commit to a home purchase, the housing market has been slow to recover from the worst downtown in decades. The Realtors' group said last month that the number of people who signed contracts to purchase previously occupied homes in the U.S. sank in September to the lowest level in five months.
The Realtors' latest report showed sales of homes in the third quarter were up 17% from a year earlier, a period in which sales dropped off due to the expiration of a federal tax credit. They were down 0.1% from the second quarter.
"Home sales need to recover first, only then can prices stabilize," said Lawrence Yun, the Realtors' chief economist, in a statement.
The metro areas showing the biggest decline in median prices from a year earlier were Mobile, Ala. (-17.7%), Phoenix (-17.6%), Allentown, Pa. (-17.5%) and Salt Lake City (-15.3%). Areas where prices rose included Grand Rapids, Mich. (23.7%), South Bend, Ind. (19.8%), Palm Bay-Melbourne, Fla. (17.7%) and Youngstown, Ohio (13.1%).
3) GM reports $1.7B third-quarter profit, down 15%-From USA Today
Almost a year to the day since going public on Nov. 18, 2010, General Motors reported third-quarter earnings down 15% from last year ago to $1.7 billion.
The profit works out to $1.03 per share vs. $1.20 a year ago. The net profit was down, even though total revenue in Q3 was up 7.6% to $36.7 billion.
Struggling GM Europe again lost money -- $292 million -- after turning a small operating profit earlier this year. But the loss was nearly 50% less than the third quarter a year ago. The division has been mostly in the red since 2000.
Investors beat down GM shares 11% (in a market down about 3%) -- much of it on worries about GM's exposure to Europe's current chaos and the company's comments today: It no longer expects to meet its earlier target for GM Europe of breaking even for the full year before restructuring costs.
But the General made a $2.2 billion operating profit in its key North America market, up $100 million. Gm International Operations (which includes Asia) had earnings of $365 million, down from $559 million a year ago. And GM South America lost $44, down from a $163 million profit a year ago.
Overall, GM sold 2.2 million vehicles in Q3, up 9%, led by strong global sales for its Cruze compact, as well as stronger sales for its big pickups and continued hot sales for its small crossovers in the U.S.
GM was able to capitalize on the production cuts by tsunami-hit Japanese rivals to raise its U.S. market share to 20.1% from 18.6% in the quarter a year ago. CFO Dan Ammann told reporters this morning, "We had revenue growth year over year; we have (market) share growth year over year … customers are obviously seeing the value of the vehicles that we have in the market,"
That also let GM maintain sales while cutting incentive spending in Q3 by 15.5%, according to Edmunds.com. "General Motors benefited from Japanese automaker struggles in the third quarter, and they were able to boost market share while cutting back on incentive spending," says Edmunds.com senior analyst Jessica Caldwell. But "with their Japanese competitors re-emerging, GM will have a tougher fight on their hands in the coming months against refreshed and redesigned offerings like the Toyota Camry and Honda Civic."
While GM continues to post profits, CEO Dan Akerson wants to do much better on it profit margins -- which might also improve a languishing share price (and let taxpayers get back a little more of the bailout money -- see below).
GM's margins are currently about 6%, which puts it back in the pack among major automakers. The most profitable are closer to 8%.
"GM delivered a solid quarter thanks to our leadership positions in North America and China, where we have grown both sales and market share this year. But solid isn't good enough, even in a tough global economy," Akerson said today in a statement. "Our overall results underscore the work we have to do to leverage our scale and further improve our margins everywhere we do business."
Added Ammann this morning, "We plan actions everywhere to improve our margins. This is not just a cost exercise: This is about improving the sustainable profitability of our business."
That might also help boost GM's share price, which, despite the profits of the past year, are down about a third since the IPO.
"More than anything else, GM's stock performance is a victim of its own early success," says Edmunds.com CEO Jeremy Anwyl. "The hype leading up to last year's IPO was about as well-scripted as you can get. GM lined up institutional investors ahead of time and began a steady drumbeat of good news about 45 days ahead of time. But because of tempered overall expectations in the automotive market this year, investors were skeptical of all automotive stocks."
Shares went out at $33 in the IPO last year. They closed Tuesday at $25.04, and were down $2.73, or 11%, to close at $22.31. That was bad news for taxpayers: The U.S. Treasury still holds about 26% of the company, a stake it has said it intends to sell as soon as possible and prudent. But it would need to be able the remaining stake for about $53 a share for taxpayers to break even on the nearly $50 billion GM bailout.
GM was the last Detroit automaker to report third-quarter results: Chrysler posted a $212 million profit, and Ford, a $1.6 billion net profit.
Quote of the Day from Dave Ramsey.com:
What we plant in the soil of contemplation, we shall reap in the harvest of action. — Meister Eckhart
Tuesday, November 8, 2011
Financial Headline News for Tuesday 11/8
Stocks were up and down today but finished higher at the close with the minute by minute European situation causing the fluctuations.
Italian Prime Minister Silvio Berlusconi agreed to resign today but the Italian and Greek debt problems have not been solved.
Supposedly jobs are getting just a bit easier to find. For each U.S. job opening at the end of September, there were 4.2 people looking for work. That was down from a year earlier, when there were 5.4 job seekers for every opening, and the fewest since December 2008.
Here are the top financial stories of the day:
1) Wall Street Ends Up After Italy Vote-From The New York Times
Stocks gyrated Tuesday before ending up on a day of dramatic political developments in Italy, the latest country to come under fire in the drawn-out euro zone debt crisis.
Powered by an early rally in Europe, the stock market in the United States rose slightly before a budget vote in Italy that had taken on immense importance for the prime minister, Silvio Berlusconi, after the recent defections of several lawmakers in his party. It passed with numerous abstentions, but Mr. Berlusconi lost his absolute majority.
Stocks then declined or were flat in afternoon trading until about two hours before the end of the session, when news that Mr. Berlusconi had offered to resign — after Parliament passes an austerity package — first emerged.
At 4 p.m., the Dow Jones industrial average was up 0.8 percent, or 102 points, to 12,170. The broader Standard & Poor’s 500-stock index was up 1.2 percent to 1,276, and the technology-heavy Nasdaq composite index was up 1.2 percent to 2,727.
There were no big reactions in credit markets, however. Italian 10-year bonds remained above their 6.7 percent yield, close to the level that forced other countries such as Greece to seek bailouts.
Investors have long been concerned that the debt ills in some of the smaller euro zone nations could spread to those with much bigger economies which would be much harder to fix. They have been focusing on Italy of late because of concern about its high debt load, rising borrowing costs and stagnant economy. Interest rates on the country’s debt have hit their highest levels since the country joined the euro zone more than a decade ago.
“With all of the debt they have to rollover it is extremely detrimental,” said Laura LaRosa, the director of fixed income at Glenmede, adding that the “domino effect” is “absolutely what seems to be happening now.”
The Treasury’s benchmark 10-year note yield was 2.09 percent after the news of the resignation, compared with 2.02 percent on Monday.
Earlier in Europe, stocks closed higher. The Euro Stoxx 50 index, a barometer of euro zone blue chips, was up 1.2 percent. The German DAX was up 0.6 percent and the CAC 40 in Paris rose 1.3 percent. The FTSE 100 index in London was 1 percent higher.
“The equity markets are generally rallying in Europe because they are hopeful resolving the political crisis is a necessary solution to resolving the European crisis,” said Jürgen Odenius, the chief economist at Prudential Fixed Income.
“The bond market remains bearish on this issue,” he added.
The euro was $1.3826, compared with $1.3758 on Monday.
2) Berlusconi resignation adds to Italian and Greek debt dramas-From CNN Money
Italian Prime Minister Silvio Berlusconi agreed to resign Tuesday, adding to the drama surrounding Greek and Italian sovereign debt issues.
Berlusconi's announcement came just hours after the Italian parliament reluctantly passed a budget reform measure with virtually all lawmakers present voting for the measure. But a majority of the 630 lawmakers abstained from the vote to show their unhappiness with the government.
If the measure had failed European support for Italy's sovereign debt could have vanished, causing an immediate crisis in the eurozone's third-largest economy. But the loss of a majority was enough to force Berlusconi's hand.
His departure could come as late as the first week of December, after a final vote on the budget. But he could be forced out sooner if investors drive up the interest rates on Italian bonds before then.
"The hope will be that Italy can quickly gain a new government with the stomach and the ability to implement major structural reforms," said Ben May, European economist with Capital Economics, in a client note. "But this alone will not solve Italy's woes."
Yields on Italy's 10-year notes, which have been well above 6% this week, shot back to close at 6.77%, with the spread to German debt increasing to a record of just under 5 percentage points. And stocks still struggled to maintain earlier gains in both Europe and the United States.
The situation in Greece also is still not resolved, as political leaders there struggled to form a coalition government in the wake of Prime Minister George Papandreou's resignation announcement Sunday.
Italy's problems are bigger than Berlusconi
Papandreou had announced he would step down in a bid to save the European bailout deal for Greece reached at the end of last month. European finance ministers, who met Monday to discuss the Greek and Italian situations, said the move was an important step to keeping the bailout deal on track.
"We welcome the intention of Greece to form a national unity government," said Luxembourg Finance Minister Jean-Claude Juncker, who leads the group of eurozone finance ministers, in a late-night statement Monday. "We underlined the importance of sustained cross-party support for the program in Greece."
Juncker said that executives of the so-called troika, the European Central Bank, the International Monetary Fund and the European Union, were set to return to Athens as soon as the new Greek government was in place. That means Greece could get the money it needs to avoid default by the end of the year.
The debt crisis and the impact it's had on the global financial system is being closely watched by investors and policymakers around the globe.
Mark Carney, the head of Canada's central bank, warned Tuesday that the global financial system is at risk of a new liquidity crisis due to European banks having to deleverage in response to sovereign debt problems.
"We are on the cusp of another retrenchment," he said in a speech in London. "There are steps that can be taken to mitigate, but not eliminate, the negative effects of the current wave. How European banks choose to delever will determine which ones authorities around the world need to take."
Carney was appointed last week as chairman of the Financial Stability Board, which has been charged by the G20 to coordinate global financial reform and monitor progress.
3) More Job Openings Signal Improving Labor Picture-From The Wall Street Journal
U.S. employers say they are looking to fill a growing number of openings as the economic recovery slowly regains traction, the latest sign of improvement in the still-weak labor market.
The U.S. had 3.4 million job openings at the end of September, up from 3.1 million in August, the
Labor Department said Tuesday. The increase was the largest in seven months. The job-openings rate—which measures openings for full- and part-time jobs relative to the total employed—was 2.5%, the highest since August 2008.
The figures suggest employers remain confident that demand will grow slowly but steadily in coming months. What's more, the data are from September, when headlines were dominated by turmoil in Europe, stock-market volatility and worries about another possible recession. That suggests employers think the recovery won't be easily sidetracked by external shocks.
The figures hardly reflect a hiring spree, and job openings remain far below their level before the latest recession. Economists cautioned that the figures indicate a still-sluggish recovery.
"Business has done a lot of cutting and got as lean as they could get," said Alan Levenson, chief economist at T. Rowe Price Associates. "Job openings are still at low levels in many industries."
He said the rise in job openings in September didn't appear to be due to a single factor. Many economists say growth in the third quarter was largely due to consumers and businesses playing "catch up" after being slowed earlier in the year by a jump in gasoline prices and supply disruptions related to the Japanese earthquake.
The rise in job openings won't necessarily lead to a big net increase in employment. State and local governments continue to shed workers, offsetting a hiring trend in the private sector, according to government-employment figures for October. Moreover, many companies say positions remain unfilled not because of a lack of applicants but because they can't find candidates with the right skills.
New York-based Agro Farma Inc. is one of the companies hiring. The maker of Chobani, a brand of Greek-style yogurt, has begun filling 400 new positions for a plant in Twin Falls, Idaho, set to open next June. The company is also adding 450 new workers to its main plant in South Edmeston, N.Y.
Chobani President Hamdi Ulukaya said the company, begun in 2007, has capitalized on Americans' increasing appetite for health foods that taste good, and that sales are expected to more than double this year. "The brand is on fire…and we need to do what we have to do to keep it going," Mr. Ulukaya said.
Quote of the Day from Dave Ramsey.com:
Leaders get out in front and stay there by raising the standards by which they judge themselves – and by which they are willing to be judged. — Fred Smith
Italian Prime Minister Silvio Berlusconi agreed to resign today but the Italian and Greek debt problems have not been solved.
Supposedly jobs are getting just a bit easier to find. For each U.S. job opening at the end of September, there were 4.2 people looking for work. That was down from a year earlier, when there were 5.4 job seekers for every opening, and the fewest since December 2008.
Here are the top financial stories of the day:
1) Wall Street Ends Up After Italy Vote-From The New York Times
Stocks gyrated Tuesday before ending up on a day of dramatic political developments in Italy, the latest country to come under fire in the drawn-out euro zone debt crisis.
Powered by an early rally in Europe, the stock market in the United States rose slightly before a budget vote in Italy that had taken on immense importance for the prime minister, Silvio Berlusconi, after the recent defections of several lawmakers in his party. It passed with numerous abstentions, but Mr. Berlusconi lost his absolute majority.
Stocks then declined or were flat in afternoon trading until about two hours before the end of the session, when news that Mr. Berlusconi had offered to resign — after Parliament passes an austerity package — first emerged.
At 4 p.m., the Dow Jones industrial average was up 0.8 percent, or 102 points, to 12,170. The broader Standard & Poor’s 500-stock index was up 1.2 percent to 1,276, and the technology-heavy Nasdaq composite index was up 1.2 percent to 2,727.
There were no big reactions in credit markets, however. Italian 10-year bonds remained above their 6.7 percent yield, close to the level that forced other countries such as Greece to seek bailouts.
Investors have long been concerned that the debt ills in some of the smaller euro zone nations could spread to those with much bigger economies which would be much harder to fix. They have been focusing on Italy of late because of concern about its high debt load, rising borrowing costs and stagnant economy. Interest rates on the country’s debt have hit their highest levels since the country joined the euro zone more than a decade ago.
“With all of the debt they have to rollover it is extremely detrimental,” said Laura LaRosa, the director of fixed income at Glenmede, adding that the “domino effect” is “absolutely what seems to be happening now.”
The Treasury’s benchmark 10-year note yield was 2.09 percent after the news of the resignation, compared with 2.02 percent on Monday.
Earlier in Europe, stocks closed higher. The Euro Stoxx 50 index, a barometer of euro zone blue chips, was up 1.2 percent. The German DAX was up 0.6 percent and the CAC 40 in Paris rose 1.3 percent. The FTSE 100 index in London was 1 percent higher.
“The equity markets are generally rallying in Europe because they are hopeful resolving the political crisis is a necessary solution to resolving the European crisis,” said Jürgen Odenius, the chief economist at Prudential Fixed Income.
“The bond market remains bearish on this issue,” he added.
The euro was $1.3826, compared with $1.3758 on Monday.
2) Berlusconi resignation adds to Italian and Greek debt dramas-From CNN Money
Italian Prime Minister Silvio Berlusconi agreed to resign Tuesday, adding to the drama surrounding Greek and Italian sovereign debt issues.
Berlusconi's announcement came just hours after the Italian parliament reluctantly passed a budget reform measure with virtually all lawmakers present voting for the measure. But a majority of the 630 lawmakers abstained from the vote to show their unhappiness with the government.
If the measure had failed European support for Italy's sovereign debt could have vanished, causing an immediate crisis in the eurozone's third-largest economy. But the loss of a majority was enough to force Berlusconi's hand.
His departure could come as late as the first week of December, after a final vote on the budget. But he could be forced out sooner if investors drive up the interest rates on Italian bonds before then.
"The hope will be that Italy can quickly gain a new government with the stomach and the ability to implement major structural reforms," said Ben May, European economist with Capital Economics, in a client note. "But this alone will not solve Italy's woes."
Yields on Italy's 10-year notes, which have been well above 6% this week, shot back to close at 6.77%, with the spread to German debt increasing to a record of just under 5 percentage points. And stocks still struggled to maintain earlier gains in both Europe and the United States.
The situation in Greece also is still not resolved, as political leaders there struggled to form a coalition government in the wake of Prime Minister George Papandreou's resignation announcement Sunday.
Italy's problems are bigger than Berlusconi
Papandreou had announced he would step down in a bid to save the European bailout deal for Greece reached at the end of last month. European finance ministers, who met Monday to discuss the Greek and Italian situations, said the move was an important step to keeping the bailout deal on track.
"We welcome the intention of Greece to form a national unity government," said Luxembourg Finance Minister Jean-Claude Juncker, who leads the group of eurozone finance ministers, in a late-night statement Monday. "We underlined the importance of sustained cross-party support for the program in Greece."
Juncker said that executives of the so-called troika, the European Central Bank, the International Monetary Fund and the European Union, were set to return to Athens as soon as the new Greek government was in place. That means Greece could get the money it needs to avoid default by the end of the year.
The debt crisis and the impact it's had on the global financial system is being closely watched by investors and policymakers around the globe.
Mark Carney, the head of Canada's central bank, warned Tuesday that the global financial system is at risk of a new liquidity crisis due to European banks having to deleverage in response to sovereign debt problems.
"We are on the cusp of another retrenchment," he said in a speech in London. "There are steps that can be taken to mitigate, but not eliminate, the negative effects of the current wave. How European banks choose to delever will determine which ones authorities around the world need to take."
Carney was appointed last week as chairman of the Financial Stability Board, which has been charged by the G20 to coordinate global financial reform and monitor progress.
3) More Job Openings Signal Improving Labor Picture-From The Wall Street Journal
U.S. employers say they are looking to fill a growing number of openings as the economic recovery slowly regains traction, the latest sign of improvement in the still-weak labor market.
The U.S. had 3.4 million job openings at the end of September, up from 3.1 million in August, the
Labor Department said Tuesday. The increase was the largest in seven months. The job-openings rate—which measures openings for full- and part-time jobs relative to the total employed—was 2.5%, the highest since August 2008.
The figures suggest employers remain confident that demand will grow slowly but steadily in coming months. What's more, the data are from September, when headlines were dominated by turmoil in Europe, stock-market volatility and worries about another possible recession. That suggests employers think the recovery won't be easily sidetracked by external shocks.
The figures hardly reflect a hiring spree, and job openings remain far below their level before the latest recession. Economists cautioned that the figures indicate a still-sluggish recovery.
"Business has done a lot of cutting and got as lean as they could get," said Alan Levenson, chief economist at T. Rowe Price Associates. "Job openings are still at low levels in many industries."
He said the rise in job openings in September didn't appear to be due to a single factor. Many economists say growth in the third quarter was largely due to consumers and businesses playing "catch up" after being slowed earlier in the year by a jump in gasoline prices and supply disruptions related to the Japanese earthquake.
The rise in job openings won't necessarily lead to a big net increase in employment. State and local governments continue to shed workers, offsetting a hiring trend in the private sector, according to government-employment figures for October. Moreover, many companies say positions remain unfilled not because of a lack of applicants but because they can't find candidates with the right skills.
New York-based Agro Farma Inc. is one of the companies hiring. The maker of Chobani, a brand of Greek-style yogurt, has begun filling 400 new positions for a plant in Twin Falls, Idaho, set to open next June. The company is also adding 450 new workers to its main plant in South Edmeston, N.Y.
Chobani President Hamdi Ulukaya said the company, begun in 2007, has capitalized on Americans' increasing appetite for health foods that taste good, and that sales are expected to more than double this year. "The brand is on fire…and we need to do what we have to do to keep it going," Mr. Ulukaya said.
Quote of the Day from Dave Ramsey.com:
Leaders get out in front and stay there by raising the standards by which they judge themselves – and by which they are willing to be judged. — Fred Smith
Monday, November 7, 2011
Financial Headline News for Monday 11/7
Stocks ended higher Monday, despite investor worries that Europe's debt crisis would spread to Italy.
The excessive government debt is counteracting the good job consumers of doing in reducing household debt.
A stark article in the Wall Street Journal today about males without a college degree struggling in the job market more than any other group.
Here are the top financial stories of the day:
1) Wall Street edges up in choppy day, swayed by Europe-From Reuters
Stocks closed a volatile, lightly traded session slightly higher on Monday, with sentiment continuing to shift with the latest headline from Europe.
Wall Street spent most of the session lower before rebounding after Juergen Stark, a member of the European Central Bank's Executive Board, said the region's debt crisis might be overcome in "one or two years at the latest."
In a signal that investors remain cautious, the strongest performers were healthcare and telecommunications stocks, both considered defensive sectors.
The S&P Health Care sector rose 1.2 percent, with Pfizer Inc gaining 2.1 percent to $20.07.
Volatility in the stock market has become more closely correlated with shifts in European bond markets, another sign of Europe's influence on U.S. equities.
"Given the overhang that Europe has been having on equities, stocks are going to be subject to intraday moves based on innuendo or conjecture as much as fact," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.
"Any news that's viewed positively is going to move the market, but I don't trust the move. We could just as easily fall back down."
The Dow Jones industrial average was up 85.22 points, or 0.71 percent, at 12,068.46. The Standard & Poor's 500 Index was up 7.89 points, or 0.63 percent, at 1,261.12. The Nasdaq Composite Index was up 9.10 points, or 0.34 percent, at 2,695.25.
The latest source of anxiety is Italy, where Prime Minister Silvio Berlusconi defied pressure to resign, keeping markets on edge before a key parliamentary vote on budget reforms.
Volume was light, with about 6.3 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's daily average of 8.47 billion.
Italian government bond yields rose to their highest since 1997 as political turmoil in Rome threatened to drag the euro zone's third-largest economy deeper into the region's debt crisis.
"The big risk is that the Italian government doesn't accept the austerity plan, which is Greece but on a scale a thousand times larger than Greece," said Jeff Buetow, chief investment officer at Innealta Capital in Austin, Texas.
Buetow, who helps oversee about $3 billion in assets under management, said his firm had reduced equity exposure in recent weeks because of European uncertainties. "There's a lot more downside risk than upside risk, and a lot of risk in general," he said.
Adding to the uncertainty, Greece's outgoing Socialist prime minister and conservative opposition leader raced to forge a coalition government and implement a new bailout program.
Equities have been very sensitive to headlines from Europe, especially with a light U.S. economic calendar this week and as earnings season winds down.
The CBOE Volatility Index VIX fell 0.9 percent after rising earlier in the session. Fresh worries about sovereign debt default have boosted the stock market's volatility.
Priceline.com Inc sank 4.7 percent to $485.15 in extended trading after the company reported results below expectations.
Consumer electronics chain Best Buy Co Inc lost 3.1 percent to $26.46 after the consumer electronics chain said it was buying British partner Carphone Warehouse Group Plc for $1.3 billion and scrapping plans for a chain of European megastores.
On the NYSE, about 52 percent of stocks closed in positive territory, while on the Nasdaq, about 14 fell for every 11 that rose.
2) Federal borrowing mounts while household debt shrinks-From USA Today
The sharp rise in federal borrowing is overwhelming efforts of consumers to reduce debt, leaving the economy deeper in debt than when the recession began in December 2007, a USA TODAY analysis finds.
How the USA's debt picture has changed:
•Consumers. Households have cut mortgage debt by 10.6% since the mid-2008 peak, after adjusting for inflation. Credit card balances and auto loans outstanding are down 9.6%.
3) Generation Jobless: Young Men Suffer Worst as Economy Staggers-From The Wall Street Journal
Few groups were hit harder by the recession than young men, like Cody Preston and Justin Randol, 25-year-old high-school buddies who didn't go to college.
The unemployment rate for males between 25 and 34 years old with high-school diplomas is 14.4%—up from 6.1% before the downturn four years ago and far above today's 9% national rate. The picture is even more bleak for slightly younger men: 22.4% for high-school graduates 20 to 24 years old.
That's up from 10.4% four years ago.
In contrast to those men, Messrs. Preston and Randol are old enough to have had some time in the job market. They worked together installing granite counters before the housing bust.
Mr. Preston married his girlfriend and settled into what he assumed would be a secure pattern of long hours on job sites and enough cash to travel and enjoy restaurants and bars. Mr. Randol at one point felt flush enough to buy a 63-inch television set and a 50-gallon fish tank for his apartment.
Then the recession hit. Neither man has found steady work since that pays as much as he earned before. Mr. Preston's marriage broke up and he moved back in with his parents, an increasingly common pattern for jobless young men. Mr. Randol has made do with help from girlfriends and by living in houses packed with roommates to keep the rent low.
For such men, high unemployment is eroding their sense of economic independence. Their predicament reflects that of a generation of Americans facing one of the weakest job markets in modern history.
"We're at risk of having a generation of young males who aren't well-connected to the labor market and who don't feel strong ownership of community or society because they haven't benefited from it," says Ralph Catalano, a professor of public health at the University of California, Berkeley.
Mr. Preston has a steady job, making parts for recreational vehicles for $11 an hour. And living with his parents rent-free allows him to start paying off debt he built up during the slump, he says. But he keeps looking for work that will pay the $14 an hour he made installing granite. What made construction especially attractive was the potential for lots of overtime, which allowed him to beef up his paychecks.
On a recent afternoon, he sat in his parents' kitchen, combing online classified ads. But construction work remains scarce and other positions available for which he's qualified don't pay more than he makes at the factory.
Sue Preston, his mother, says several of her friends are helping out their grown sons, providing either money or shelter or both. She works in payroll at a telecommunications company, and neither she nor her husband, a truck driver who worked his way up into operations, has a college degree. That wasn't an issue when they were starting out, she says: Trade and production jobs were not only available, in many cases they paid enough that many blue-collar wives didn't have to work.
Now she worries that lower wages—and, more pressingly, the dearth of jobs—has left young men like her son disaffected and depressed. "They're working minimum-wage jobs and a lot of times, they don't have benefits, they don't have a full 40 hours a week. It's such a struggle they're kind of like, 'What for? All I'm doing is surviving,' " she says. "They have to move back home or they have to have multiple roommates. How are you going to take on a wife and a family in that situation?"
The share of men age 25-34 living with their parents jumped to 18.6% this year, up from 14.2% four years ago and the highest level since at least 1960, according to the Census Bureau.
Mr. Randol, an ex-convict who is in irregular contact with his parents, says he doesn't have access to the live-at-home reset button. So the Portland native is stretching his $187-a-week unemployment checks by living in a two-story $1,000-a-month house, 40 minutes away in St. Helens, Ore., that he splits with a couple and a friend whose claim to a small bedroom fluctuates based on whether he has a girlfriend.
Mr. Randol admits that over the past three years he's indulged in too much beer and "Call of Duty," the popular war-simulation videogame. Empty liquor bottles line the top of his kitchen cabinets as decoration. "I just hope stuff gets better," he says as he battles online rivals one evening.
Mr. Randol says he's looking for work but grumbles that the remodeling jobs advertised pay between $10 and $12 an hour, with no assurance of full-time work.
Mr. Randol was a poor student who got in trouble in high school and earned a high-school equivalency certificate in lieu of a diploma. He is the first to admit that a checkered past has hampered his job prospects. In 2004 he served a year for burglary and not long after added an assault charge that resulted from a fist fight during a night of hard partying.
But when the housing boom came, he says, his past wasn't such a big issue. After working fast-food counters and other minimum-wage jobs, in 2007 he landed a position installing granite for Fineline Pacific. He started at $10 an hour and within six months was making $15, with plentiful overtime. Mr. Randol told Mr. Preston to apply. He did and was hired.
"They were looking for anybody who would show up to work," says Ted Sherritt, chief executive of Floform Countertops, the Winnipeg, Manitoba, company that acquired Fineline.
Mr. Preston lived well with his construction money. He took out his girlfriend frequently and paid for a snowboarding trip, during which he proposed to her at the summit of Mount Hood, Ore. Married, they settled in Canby, Ore., about 40 minutes from Portland. "I was in a hurry to grow up," he says.
Both Mr. Preston and Mr. Randol say the first sign of trouble appeared on a white dry-erase board at company headquarters. The list of jobs became short, and then empty.
Mr. Sherritt says sales at the company dropped 40% through 2008 and 2009. When it reduced head count, Mr. Randol was among those let go. Floform acquired Fineline late in 2008.
Mr. Preston was kept on a bit longer than his friend but eventually lost his job, too. Mr. Preston was able to find work at a bike store, a skate shop and other retailers, but at lower wages than at his construction job and often with sporadic hours.
To save on rent, he and his wife moved to her parents' house in Salem, Ore., a 45-minute drive from Portland. Later, when the couple separated, he went to live with friends in Bend, Ore., 3½ hours from Portland. He found occasional jobs—one was at a gas station—but after a few months gave up and moved home.
"I wasn't living, I was surviving," he says.
Quote of the Day from Dave Ramsey.com:
Happiness depends more on the inward disposition of mind than on outward circumstances. — Benjamin Franklin
The excessive government debt is counteracting the good job consumers of doing in reducing household debt.
A stark article in the Wall Street Journal today about males without a college degree struggling in the job market more than any other group.
Here are the top financial stories of the day:
1) Wall Street edges up in choppy day, swayed by Europe-From Reuters
Stocks closed a volatile, lightly traded session slightly higher on Monday, with sentiment continuing to shift with the latest headline from Europe.
Wall Street spent most of the session lower before rebounding after Juergen Stark, a member of the European Central Bank's Executive Board, said the region's debt crisis might be overcome in "one or two years at the latest."
In a signal that investors remain cautious, the strongest performers were healthcare and telecommunications stocks, both considered defensive sectors.
The S&P Health Care sector rose 1.2 percent, with Pfizer Inc gaining 2.1 percent to $20.07.
Volatility in the stock market has become more closely correlated with shifts in European bond markets, another sign of Europe's influence on U.S. equities.
"Given the overhang that Europe has been having on equities, stocks are going to be subject to intraday moves based on innuendo or conjecture as much as fact," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.
"Any news that's viewed positively is going to move the market, but I don't trust the move. We could just as easily fall back down."
The Dow Jones industrial average was up 85.22 points, or 0.71 percent, at 12,068.46. The Standard & Poor's 500 Index was up 7.89 points, or 0.63 percent, at 1,261.12. The Nasdaq Composite Index was up 9.10 points, or 0.34 percent, at 2,695.25.
The latest source of anxiety is Italy, where Prime Minister Silvio Berlusconi defied pressure to resign, keeping markets on edge before a key parliamentary vote on budget reforms.
Volume was light, with about 6.3 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's daily average of 8.47 billion.
Italian government bond yields rose to their highest since 1997 as political turmoil in Rome threatened to drag the euro zone's third-largest economy deeper into the region's debt crisis.
"The big risk is that the Italian government doesn't accept the austerity plan, which is Greece but on a scale a thousand times larger than Greece," said Jeff Buetow, chief investment officer at Innealta Capital in Austin, Texas.
Buetow, who helps oversee about $3 billion in assets under management, said his firm had reduced equity exposure in recent weeks because of European uncertainties. "There's a lot more downside risk than upside risk, and a lot of risk in general," he said.
Adding to the uncertainty, Greece's outgoing Socialist prime minister and conservative opposition leader raced to forge a coalition government and implement a new bailout program.
Equities have been very sensitive to headlines from Europe, especially with a light U.S. economic calendar this week and as earnings season winds down.
The CBOE Volatility Index VIX fell 0.9 percent after rising earlier in the session. Fresh worries about sovereign debt default have boosted the stock market's volatility.
Priceline.com Inc sank 4.7 percent to $485.15 in extended trading after the company reported results below expectations.
Consumer electronics chain Best Buy Co Inc lost 3.1 percent to $26.46 after the consumer electronics chain said it was buying British partner Carphone Warehouse Group Plc for $1.3 billion and scrapping plans for a chain of European megastores.
On the NYSE, about 52 percent of stocks closed in positive territory, while on the Nasdaq, about 14 fell for every 11 that rose.
2) Federal borrowing mounts while household debt shrinks-From USA Today
The sharp rise in federal borrowing is overwhelming efforts of consumers to reduce debt, leaving the economy deeper in debt than when the recession began in December 2007, a USA TODAY analysis finds.
The substitution of government debt for consumer debt helped end the recession and start a recovery, economists say, but it leaves the nation's long-term economic health in peril.
Households have reduced debt by $549 billion since 2007, mostly by cutting mortgages through defaults and paying down credit cards. During that time, the federal government has added more than $4 trillion in debt, pushing the country's total borrowing to a record $36.5 trillion, excluding the financial industry, according to the Federal Reserve.
"Government will eventually need to reduce the deficit," says Susan Lund, research director at McKinsey Global Institute, part of the business consulting firm. "But it's a very difficult balancing act to avoid withdrawing stimulus too soon while stopping before you borrow too much."
Lund, who studied 45 financial crises since 1930, says a familiar pattern is underway: Private borrowers reduce debt quickly, government borrows more, a period of government austerity follows — a process that can take five to seven years for an economy to repair itself.
"Is the debt level we have today going to be the death of us? No," says Martin Regalia, chief economist for the U.S. Chamber of Commerce. "It's the trajectory that could do us in. We know we're headed in the wrong direction."
Regalia says the recommendations of a special congressional deficit-reduction committee are crucial. The panel reports Nov. 23.
How the USA's debt picture has changed:
•Consumers. Households have cut mortgage debt by 10.6% since the mid-2008 peak, after adjusting for inflation. Credit card balances and auto loans outstanding are down 9.6%.
•Government. Federal debt has risen from 36.9% of the nation's gross domestic product when the recession began to 67.5% on Sept. 30.
The shift of debt from individual borrowers to all taxpayers will shuffle who pays it off. Younger people will face extra burdens, says North Carolina State economist Nora Traum. But the political outcome of deficit negotiations will determine how the rest is distributed among income levels, age groups, professions and regions. "With such uncertainty, it's hard to say who will be winners and losers," she says.
3) Generation Jobless: Young Men Suffer Worst as Economy Staggers-From The Wall Street Journal
Few groups were hit harder by the recession than young men, like Cody Preston and Justin Randol, 25-year-old high-school buddies who didn't go to college.
The unemployment rate for males between 25 and 34 years old with high-school diplomas is 14.4%—up from 6.1% before the downturn four years ago and far above today's 9% national rate. The picture is even more bleak for slightly younger men: 22.4% for high-school graduates 20 to 24 years old.
That's up from 10.4% four years ago.
In contrast to those men, Messrs. Preston and Randol are old enough to have had some time in the job market. They worked together installing granite counters before the housing bust.
Mr. Preston married his girlfriend and settled into what he assumed would be a secure pattern of long hours on job sites and enough cash to travel and enjoy restaurants and bars. Mr. Randol at one point felt flush enough to buy a 63-inch television set and a 50-gallon fish tank for his apartment.
Then the recession hit. Neither man has found steady work since that pays as much as he earned before. Mr. Preston's marriage broke up and he moved back in with his parents, an increasingly common pattern for jobless young men. Mr. Randol has made do with help from girlfriends and by living in houses packed with roommates to keep the rent low.
For such men, high unemployment is eroding their sense of economic independence. Their predicament reflects that of a generation of Americans facing one of the weakest job markets in modern history.
"We're at risk of having a generation of young males who aren't well-connected to the labor market and who don't feel strong ownership of community or society because they haven't benefited from it," says Ralph Catalano, a professor of public health at the University of California, Berkeley.
Mr. Preston has a steady job, making parts for recreational vehicles for $11 an hour. And living with his parents rent-free allows him to start paying off debt he built up during the slump, he says. But he keeps looking for work that will pay the $14 an hour he made installing granite. What made construction especially attractive was the potential for lots of overtime, which allowed him to beef up his paychecks.
On a recent afternoon, he sat in his parents' kitchen, combing online classified ads. But construction work remains scarce and other positions available for which he's qualified don't pay more than he makes at the factory.
Sue Preston, his mother, says several of her friends are helping out their grown sons, providing either money or shelter or both. She works in payroll at a telecommunications company, and neither she nor her husband, a truck driver who worked his way up into operations, has a college degree. That wasn't an issue when they were starting out, she says: Trade and production jobs were not only available, in many cases they paid enough that many blue-collar wives didn't have to work.
Now she worries that lower wages—and, more pressingly, the dearth of jobs—has left young men like her son disaffected and depressed. "They're working minimum-wage jobs and a lot of times, they don't have benefits, they don't have a full 40 hours a week. It's such a struggle they're kind of like, 'What for? All I'm doing is surviving,' " she says. "They have to move back home or they have to have multiple roommates. How are you going to take on a wife and a family in that situation?"
The share of men age 25-34 living with their parents jumped to 18.6% this year, up from 14.2% four years ago and the highest level since at least 1960, according to the Census Bureau.
Mr. Randol, an ex-convict who is in irregular contact with his parents, says he doesn't have access to the live-at-home reset button. So the Portland native is stretching his $187-a-week unemployment checks by living in a two-story $1,000-a-month house, 40 minutes away in St. Helens, Ore., that he splits with a couple and a friend whose claim to a small bedroom fluctuates based on whether he has a girlfriend.
Mr. Randol admits that over the past three years he's indulged in too much beer and "Call of Duty," the popular war-simulation videogame. Empty liquor bottles line the top of his kitchen cabinets as decoration. "I just hope stuff gets better," he says as he battles online rivals one evening.
Mr. Randol says he's looking for work but grumbles that the remodeling jobs advertised pay between $10 and $12 an hour, with no assurance of full-time work.
Mr. Randol was a poor student who got in trouble in high school and earned a high-school equivalency certificate in lieu of a diploma. He is the first to admit that a checkered past has hampered his job prospects. In 2004 he served a year for burglary and not long after added an assault charge that resulted from a fist fight during a night of hard partying.
But when the housing boom came, he says, his past wasn't such a big issue. After working fast-food counters and other minimum-wage jobs, in 2007 he landed a position installing granite for Fineline Pacific. He started at $10 an hour and within six months was making $15, with plentiful overtime. Mr. Randol told Mr. Preston to apply. He did and was hired.
"They were looking for anybody who would show up to work," says Ted Sherritt, chief executive of Floform Countertops, the Winnipeg, Manitoba, company that acquired Fineline.
Mr. Preston lived well with his construction money. He took out his girlfriend frequently and paid for a snowboarding trip, during which he proposed to her at the summit of Mount Hood, Ore. Married, they settled in Canby, Ore., about 40 minutes from Portland. "I was in a hurry to grow up," he says.
Both Mr. Preston and Mr. Randol say the first sign of trouble appeared on a white dry-erase board at company headquarters. The list of jobs became short, and then empty.
Mr. Sherritt says sales at the company dropped 40% through 2008 and 2009. When it reduced head count, Mr. Randol was among those let go. Floform acquired Fineline late in 2008.
Mr. Preston was kept on a bit longer than his friend but eventually lost his job, too. Mr. Preston was able to find work at a bike store, a skate shop and other retailers, but at lower wages than at his construction job and often with sporadic hours.
To save on rent, he and his wife moved to her parents' house in Salem, Ore., a 45-minute drive from Portland. Later, when the couple separated, he went to live with friends in Bend, Ore., 3½ hours from Portland. He found occasional jobs—one was at a gas station—but after a few months gave up and moved home.
"I wasn't living, I was surviving," he says.
Quote of the Day from Dave Ramsey.com:
Happiness depends more on the inward disposition of mind than on outward circumstances. — Benjamin Franklin
Thursday, November 3, 2011
Financial Headline News for Thursday 11/3
The Dow went back over the 12,000 mark today as there was yet once again hope for the resolution of the Greek Debt Crisis.We'll see how long this good news lasts as we've heard this tune once to many times.
First time unemployment claims finally registered under the 400,000 expected number by coming in at 397,000. However, as usually happens, this figure will probably be adjusted up like it is every week when no one is paying attention. Last week was revised up from 402,000 to 406,000.
An interesting article below of how the USA economy could turn into another Japan with a lost generation.
Here are the top financial stories of the day:
1) Greek about face on vote, ECB rate cut boost shares-From Reuters
Stocks rallied for a second day on Thursday as Greece backed away from a proposed referendum that threatened its membership in the euro, which could destabilize global markets.
News out of Europe has kept investors on pins and needles for months. Investors are worried a possible default by Greece could trigger another financial crisis that could spread beyond Europe.
The European Central Bank provided a happy surprise early to investors with an interest rate cut, a sign of a more aggressive approach to confront weak growth in the region.
Greek Prime Minister George Papandreou backed away from his referendum proposal that could have derailed last week's long-awaited agreement to cut Greek debt and shore up European banks.
"There's just this extraordinary focus on Greece, the fast money in the market is interpreting the news out of Europe ... and they're saying this is good, this is bad," said Eric Kuby, chief investment officer at North Star Investment Management Corp. in Chicago.
"A month or two ago people thought there was going to be a bigger crisis, more contagion. It's not happened, so people are trying to get more invested in equities, putting the risk trade back on."
Stocks associated with growth led, with energy the best-performing sector on Thursday. Equity performance has been highly correlated with the euro, which gathered steam throughout the day on supportive headlines from Europe.
The S&P energy index (SNP:^GSPE) rose 2.5 percent, while the technology index (.GSPT) gained 2.4 percent.
The Dow Jones industrial average (DJI:^DJI) was up 208.43 points, or 1.76 percent, at 12,044.47. The Standard & Poor's 500 Index (SNP:^GSPC) was up 23.25 points, or 1.88 percent, at 1,261.15. The Nasdaq Composite Index (Nasdaq:^IXIC) was up 57.99 points, or 2.20 percent, at 2,697.97.
Shares of mobile phone chip maker Qualcomm (NasdaqGS:QCOM), up 7.5 percent to $56.11, helped support the Nasdaq a day after the company forecast sales above forecasts.
The focus on Friday should shift more to the United States when the Labor Department releases October's non-farm jobs report. Economists polled by Reuters forecast the economy added 95,000 payroll jobs last month.
Data on Thursday showed fewer Americans filed new claims for jobless benefits last week, a sign the U.S. economy's growth is steady.
"What you are seeing is reasonably good economic numbers from the U.S., so you're not seeing anything that's in a negative way changing the focus," Kuby said.
Solid U.S. earnings, too, have provided a lot of underlying support for the market in recent weeks, he said.
After the close, shares of Starbucks (NasdaqGS:SBUX) rose 2.4 percent to $42.40 as it reported results.
About 8.38 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, in line with last year's daily average of 8.47 billion.
Advancing stocks beat declining ones on the NYSE by about 4 to 1 and on the Nasdaq by about 3 to 1.
2) Jobless Claims Decline-From The Wall Street Journal
New claims for unemployment benefits were down last week, showing some improvement for the still-weak labor market.
Separately, U.S. workers' productivity rose in the third quarter for the first time this year as the economy picked up some speed and labor costs declined.
Meanwhile, factory orders rose for the third consecutive month in September, an unexpected gain for a key sector of the economy.
Initial jobless claims fell by 9,000 to a seasonally adjusted 397,000
the week ended Oct. 29, the Labor Department said Thursday.
In the prior week, jobless claims were revised up to 406,000 from an originally reported 402,000, according to the newly released figures.
The four-week moving average of new claims, a more reliable indicator of the labor market's performance because it smooths out volatile weekly figures, dropped by 2,000 to 404,500 last week.
It was the first time weekly jobless claims fell below 400,000 since the week ended Sep. 24. Most economists believe jobless claims must fall below that mark for the economy to add more jobs than it is shedding. Economists surveyed by Dow Jones Newswires had forecast claims for last week would fall by 2,000 to 400,000.
While new jobless claims have edged down two of the past three weeks, the improvement likely has been too small to reduce the unemployment rate.
The government's official tally of U.S. employment will be released Friday. Economists predict the rate will remain unchanged at 9.1%.
High unemployment remains among the most significant challenges for the U.S. economy. On Wednesday, the Federal Reserve projected that unemployment will remain near or above the 8% mark through 2013.
Fed Chairman Ben Bernanke said that forecast was "unsatisfactory" and called on Congress and the White House to assist the central bank in boosting employment.
Thursday's report showed the number of continuing unemployment benefit claims--those drawn by workers for more than a week--totaled 3,683,000 in the week ended Oct. 22. Continuing claims are reported with a one-week lag.
That number was a 15,000 fall from the prior week.
The unemployment rate for workers with unemployment insurance was 2.9% for the week ending Oct. 22, the same as the prior week, the new data showed.
The state-by-state breakdown in initial jobless claims, which is also released with a lag, showed the biggest rise the week ended Oct. 22 was in California. Claims there rose by 7,176 amid more layoffs in the service industry. The largest decline in claims was in Florida, down 2,230 as the agriculture, manufacturing and several other sectors saw fewer layoffs.
A Labor Department official said there was nothing unusual about the latest jobless claims state level data.
Economists polled by Dow Jones Newswires were expecting productivity to rise by 3.1% in July through September and labor costs to fall by 1.2%.
The pickup in productivity came as the U.S. economy accelerated in the third quarter, growing at a 2.5% annual rate, after barely growing in the first half of the year. Americans have started to spend more since the summer, fueling the pickup in economic growth, but the trend may not be sustainable because consumers have had to tap into their savings to do so.
Thursday's report showed that labor costs fell for the first time this year. With unemployment high, workers are in a weaker position to demand higher salaries, allowing companies to keep labor costs down.
Meanwhile, nonfarm business output rose by 3.8% during the third quarter, following a 1.8% increase in the April to June period.
The government report also showed that hours worked increased by 0.6% during July through September, following a 2.0% rise in the second quarter.
Productivity in manufacturing, a sector that drove the recovery at the beginning but has suffered a setback in recent months, increased by 5.4% in the third quarter, compared to a 2.3% decline in the previous three months.
August orders inched ahead 0.1% and July orders gained 2.1%.
In a positive sign, capital investment on equipment by U.S. businesses also rose. Non-defense capital goods orders excluding aircraft jumped 2.9%. The category of orders serves as an indicator of the confidence businesses have in the economy.
Manufacturing, a key driver of the economy early in the recovery, hit a rough patch this year, though there are some indications that activity is picking up.
An Institute for Supply Management report Tuesday said the manufacturing sector barely expanded in October. The ISM purchasing managers' index fell to 50.8 last month from 51.6 in September. A reading above 50 indicates expanding activity.
Despite a slow start, the outlook for the fourth quarter was positive. The ISM's new-orders index increased to 52.4 from 49.6, and the factory-employment index remained expansionary, at 53.5 from 53.8 in September.
Thursday's Commerce Department report showed that the rise in factory orders during September was driven by most categories outside the transportation sector.
Transportation orders plummeted 7.1% on the back of weaker auto and aircraft demand.
Excluding transportation, factory orders were up 1.3% in September, the biggest gain since March. Orders dipped by 0.1% in August.
Commerce said durable-goods orders fell a revised 0.6% in September; non-durables rose 1.0%.
Orders in September for capital goods slipped 0.8%. Defense capital goods orders jumped 8.9%.
Excluding defense orders, overall factory orders in September were up 0.2%.
The report showed September factory shipments rose 0.3%. Unfilled orders, a sign of future demand, were up 0.9%. Inventories barely inched ahead.
3) Could Japan's economic malaise strike here in U.S.? From USA Today
If you wonder what haunts Federal Reserve Chairman Ben Bernanke's dreams, it's Japan.
Japan has suffered more than two decades of subpar economic growth, made all the more miserable by falling consumer prices, a stagnant real estate market and a moribund stock market. The worry: that the U.S. economy devolves into something like Japan's.
Some of the similarities between Japan's economic woes and the U.S.' are striking. Both countries have aging populations. Both have ultra-low interest rates, which don't seem to be having much effect in stimulating the economy. And both countries are struggling with high debt loads.
Could the U.S. be entering a multi-decade recession like Japan's? Probably not, experts say: Japan's main problem was reacting too slowly to its problems, and the U.S. has reacted fairly swiftly to the economic crisis. Nevertheless, some of the problems the U.S. faces now could take another two to five years to fix — and investors could learn a thing or two from the Japanese experience if hard times drag on.
The U.S. recession officially began in December 2007 and ended in June 2009, according to the National Bureau of Economic Research. To most people, though, it still feels like a recession.
Unemployment stands at 9.1%, according to the Bureau of Labor Statistics, and gross domestic product grew at a tepid 1.3% in the second quarter and is estimated to have grown at an annual rate of 2.5% from the second quarter to the third.
Miserable as current conditions are, they pale in comparison with Japan's problems. "It's not the lost decade — it's the lost two decades," says Bill Kennedy, portfolio manager for Fidelity International Discovery fund. Japan's period of malaise began in 1990, and the country is still struggling today.
How bad is it? The Nikkei stock index is down 80% from its 1989 peak. Property prices fell more than 80%.
Could the U.S. see a period like Japan's? "It's an increasing possibility," says Ryan Brecht, senior economist at Action Economics. Some of the similarities are striking.
For example, Japan's woes started with an overheated real estate market and frenzied borrowing — two problems that will sound familiar to anyone in the U.S. Home prices in the U.S. have fallen more than 30% since 2006, according to Standard and Poor's. The Japanese real estate market has yet to fully recover from its 1980s excesses.
Both the U.S. and Japan have seen heavy losses in their stock markets. The Wilshire 5000, a broad measure of the U.S. stock market, is down 18% from its 2007 high. Both countries suffer from high debt: Consumer debt in the U.S., and corporate debt in Japan. And the aging populations in both countries mean fewer younger workers will have to support more retirees.
The Japanese made matters worse in three ways:
•Japanese banks were slow to write down bad debt. "They took 10 years to recognize the non-performing loans," Kennedy says. "They kicked the can down the road."
Japan's corporations gradually paid down their debt, but during that time, they weren't making investments, says Kenichi Amaki, portfolio manager for the Matthews funds. Because the companies weren't investing in factories and employment, economic growth remained anemic.
•After the initial meltdown in 1990, the Japanese central bank kept rates too high for too long. Japan's short-term prime lending rate was 6.88% in 1991 and 3.91% in 1992, even though property values plunged 5.11% in 1992. Japan didn't drop rates to nearly zero until 1995.
•Worried by threats of a credit downgrade because of the country's high level of debt, Japan raised its consumption tax in 1997, which slowed the economy just as it was beginning to recover. "It's fair to say that the Japanese repeated what we did in 1937 — raised taxes too soon," says John Silvia, chief economist for Wells Fargo bank.
Japan now has persistent deflation — a period of falling prices. Part of that is because China can supply low-priced, quality goods. "Even though Japan is cutting supply, for every one unit that Japan cuts, China is there with three more units," Amaki says. Also, Japanese consumers have a deflationary mentality: If you wait long enough, prices will fall.
Japan's declining population plays a role, too. The median age in Japan — half are younger, half are older — is 44.8 years, according to the Central Intelligence Agency. In the U.S., it's 36.9 years. In both the U.S. and Japan, the median age is creeping higher, meaning there are fewer young people to contribute to pensions and health care. But the U.S. population continues to grow, which eventually translates into GDP growth.
Finally, Japan has been hit with bad luck. "The balance-sheet recession ended in 2006," Amaki says.
"Companies became more willing to take on debt to finance growth." The 2008 financial crisis soon put an end to that, and the 2011 earthquake, tsunami and nuclear power station meltdown put a big cramp in Japan's GDP.
Why it's different in U.S.
Economists say that the U.S. may avoid a Japan-like period of malaise. The Federal Reserve was very quick to react to the 2008 financial crisis, pushing interest rates down to near zero.
U.S. consumers are paying down their debt and saving more, Amaki says. Although that's a slow process, consumers have come to realize that paying off a debt is like getting a raise: It increases your disposable income. Eventually, that will translate into more spending. "The American consumer won't change," Silvia says.
What could go wrong? Plenty. "When I look at the argument between political parties about whether to rein in spending or raise taxes, it reminds me of what happened in Japan," says Amaki, referring to Japan's increase in consumption taxes. In the short term, he says, raising taxes or slamming on the brakes in spending would be "a terrible idea."
Similarly, a rate increase could weaken economic growth further, Silvia says. "Housing starts are continuing to struggle with mortgage rates at 4%," he says. Raising rates would make the struggle even worse.
Lessons for U.S. investors
For investors, the specter of a long period of malaise means a long period of low returns. Nevertheless, despite the chronically bad market, some Japanese stocks fared well. What investors can learn from Japan:
•Profits. "Stock prices follow earnings," Kennedy says. Although the broad market fared poorly in Japan, some industries fared better than others. Japanese financial services companies, for example, were a disaster. "It's appalling how much wealth destruction they caused," Kennedy says. Not surprisingly, Japanese bank earnings have been poor.
But some Japanese industries did well. Autos, for example, prospered until competition from South Korea cut into sales. (The rising value of the Japanese yen also made Japan's autos more expensive abroad.) Japanese factory automation is now doing well, although it, too, may be threatened by competition from China.
•Price cutting. In a deflationary period, people love bargains. Companies that can undercut competitors with quality items flourish in a deflationary environment. So it's no surprise that domestic Japanese stores that cater to bargain-hunters fared well. "Any area where the consumer feels like he or she is getting a good deal," Kennedy says.
One example — not in Kennedy's portfolio, according to Morningstar — is Don Quijote, a discount store that has grown to 150 stores since 1980. The company offers an eclectic mix of bargain products and amusements, including a yet-unfinished roller-coaster in downtown Tokyo.
•Flexibility. The downfall of many Japanese companies was that they didn't react quickly enough to change. Japan's automakers, for example, have struggled against their Korean competition, as have electronics manufacturers. "The big difference between U.S. and Japanese companies is the ability to reinvent themselves," Kennedy says.
In the U.S., the low value of the dollar has given manufacturers a boost: U.S. goods sold abroad are now cheaper because of the swooning greenback. And, while the U.S. manufacturing sector is always described as shrinking, that's because U.S. factories are highly efficient. The U.S. manufacturing sector remains the largest in the world.
If you're betting on a long, subpar period — and many investors, such as Bill Gross of Pimco are doing just that — then you can learn some lessons from Japan. Look for domestic companies with rising earnings and an ability to cut prices.
And be careful what you wish for, Amaki says. "When I see the arguments between political parties about raising taxes or cutting spending, I think of what happened in Japan in 1997," he says. "It would be a terribly bad idea."
Quote of the Day from Dave Ramsey.com:
If you can't see the bright side of life, polish the dull side. — Anonymous
First time unemployment claims finally registered under the 400,000 expected number by coming in at 397,000. However, as usually happens, this figure will probably be adjusted up like it is every week when no one is paying attention. Last week was revised up from 402,000 to 406,000.
An interesting article below of how the USA economy could turn into another Japan with a lost generation.
Here are the top financial stories of the day:
1) Greek about face on vote, ECB rate cut boost shares-From Reuters
Stocks rallied for a second day on Thursday as Greece backed away from a proposed referendum that threatened its membership in the euro, which could destabilize global markets.
News out of Europe has kept investors on pins and needles for months. Investors are worried a possible default by Greece could trigger another financial crisis that could spread beyond Europe.
The European Central Bank provided a happy surprise early to investors with an interest rate cut, a sign of a more aggressive approach to confront weak growth in the region.
Greek Prime Minister George Papandreou backed away from his referendum proposal that could have derailed last week's long-awaited agreement to cut Greek debt and shore up European banks.
"There's just this extraordinary focus on Greece, the fast money in the market is interpreting the news out of Europe ... and they're saying this is good, this is bad," said Eric Kuby, chief investment officer at North Star Investment Management Corp. in Chicago.
"A month or two ago people thought there was going to be a bigger crisis, more contagion. It's not happened, so people are trying to get more invested in equities, putting the risk trade back on."
Stocks associated with growth led, with energy the best-performing sector on Thursday. Equity performance has been highly correlated with the euro, which gathered steam throughout the day on supportive headlines from Europe.
The S&P energy index (SNP:^GSPE) rose 2.5 percent, while the technology index (.GSPT) gained 2.4 percent.
The Dow Jones industrial average (DJI:^DJI) was up 208.43 points, or 1.76 percent, at 12,044.47. The Standard & Poor's 500 Index (SNP:^GSPC) was up 23.25 points, or 1.88 percent, at 1,261.15. The Nasdaq Composite Index (Nasdaq:^IXIC) was up 57.99 points, or 2.20 percent, at 2,697.97.
Shares of mobile phone chip maker Qualcomm (NasdaqGS:QCOM), up 7.5 percent to $56.11, helped support the Nasdaq a day after the company forecast sales above forecasts.
The focus on Friday should shift more to the United States when the Labor Department releases October's non-farm jobs report. Economists polled by Reuters forecast the economy added 95,000 payroll jobs last month.
Data on Thursday showed fewer Americans filed new claims for jobless benefits last week, a sign the U.S. economy's growth is steady.
"What you are seeing is reasonably good economic numbers from the U.S., so you're not seeing anything that's in a negative way changing the focus," Kuby said.
Solid U.S. earnings, too, have provided a lot of underlying support for the market in recent weeks, he said.
After the close, shares of Starbucks (NasdaqGS:SBUX) rose 2.4 percent to $42.40 as it reported results.
About 8.38 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, in line with last year's daily average of 8.47 billion.
Advancing stocks beat declining ones on the NYSE by about 4 to 1 and on the Nasdaq by about 3 to 1.
2) Jobless Claims Decline-From The Wall Street Journal
New claims for unemployment benefits were down last week, showing some improvement for the still-weak labor market.
Separately, U.S. workers' productivity rose in the third quarter for the first time this year as the economy picked up some speed and labor costs declined.
Meanwhile, factory orders rose for the third consecutive month in September, an unexpected gain for a key sector of the economy.
Initial jobless claims fell by 9,000 to a seasonally adjusted 397,000
the week ended Oct. 29, the Labor Department said Thursday.
In the prior week, jobless claims were revised up to 406,000 from an originally reported 402,000, according to the newly released figures.
The four-week moving average of new claims, a more reliable indicator of the labor market's performance because it smooths out volatile weekly figures, dropped by 2,000 to 404,500 last week.
It was the first time weekly jobless claims fell below 400,000 since the week ended Sep. 24. Most economists believe jobless claims must fall below that mark for the economy to add more jobs than it is shedding. Economists surveyed by Dow Jones Newswires had forecast claims for last week would fall by 2,000 to 400,000.
While new jobless claims have edged down two of the past three weeks, the improvement likely has been too small to reduce the unemployment rate.
The government's official tally of U.S. employment will be released Friday. Economists predict the rate will remain unchanged at 9.1%.
High unemployment remains among the most significant challenges for the U.S. economy. On Wednesday, the Federal Reserve projected that unemployment will remain near or above the 8% mark through 2013.
Fed Chairman Ben Bernanke said that forecast was "unsatisfactory" and called on Congress and the White House to assist the central bank in boosting employment.
Thursday's report showed the number of continuing unemployment benefit claims--those drawn by workers for more than a week--totaled 3,683,000 in the week ended Oct. 22. Continuing claims are reported with a one-week lag.
That number was a 15,000 fall from the prior week.
The unemployment rate for workers with unemployment insurance was 2.9% for the week ending Oct. 22, the same as the prior week, the new data showed.
The state-by-state breakdown in initial jobless claims, which is also released with a lag, showed the biggest rise the week ended Oct. 22 was in California. Claims there rose by 7,176 amid more layoffs in the service industry. The largest decline in claims was in Florida, down 2,230 as the agriculture, manufacturing and several other sectors saw fewer layoffs.
A Labor Department official said there was nothing unusual about the latest jobless claims state level data.
Productivity Advances
Nonfarm business productivity rose at a 3.1% annual rate in July through September, after dropping by 0.1% in the previous three months and by 0.6% in the first quarter, the Labor Department said Thursday. Unit labor costs, meanwhile, fell by 2.4% in the third quarter.Economists polled by Dow Jones Newswires were expecting productivity to rise by 3.1% in July through September and labor costs to fall by 1.2%.
The pickup in productivity came as the U.S. economy accelerated in the third quarter, growing at a 2.5% annual rate, after barely growing in the first half of the year. Americans have started to spend more since the summer, fueling the pickup in economic growth, but the trend may not be sustainable because consumers have had to tap into their savings to do so.
Thursday's report showed that labor costs fell for the first time this year. With unemployment high, workers are in a weaker position to demand higher salaries, allowing companies to keep labor costs down.
Meanwhile, nonfarm business output rose by 3.8% during the third quarter, following a 1.8% increase in the April to June period.
The government report also showed that hours worked increased by 0.6% during July through September, following a 2.0% rise in the second quarter.
Productivity in manufacturing, a sector that drove the recovery at the beginning but has suffered a setback in recent months, increased by 5.4% in the third quarter, compared to a 2.3% decline in the previous three months.
Factory Orders Increase
U.S. factory orders rose for the third consecutive month in September, an unexpected gain for a key sector of the economy. Orders climbed by 0.3% from the prior month to $453.54 billion, the Commerce Department said Thursday. Economists surveyed by Dow Jones Newswires had forecast a 0.2% decline.August orders inched ahead 0.1% and July orders gained 2.1%.
In a positive sign, capital investment on equipment by U.S. businesses also rose. Non-defense capital goods orders excluding aircraft jumped 2.9%. The category of orders serves as an indicator of the confidence businesses have in the economy.
Manufacturing, a key driver of the economy early in the recovery, hit a rough patch this year, though there are some indications that activity is picking up.
An Institute for Supply Management report Tuesday said the manufacturing sector barely expanded in October. The ISM purchasing managers' index fell to 50.8 last month from 51.6 in September. A reading above 50 indicates expanding activity.
Despite a slow start, the outlook for the fourth quarter was positive. The ISM's new-orders index increased to 52.4 from 49.6, and the factory-employment index remained expansionary, at 53.5 from 53.8 in September.
Thursday's Commerce Department report showed that the rise in factory orders during September was driven by most categories outside the transportation sector.
Transportation orders plummeted 7.1% on the back of weaker auto and aircraft demand.
Excluding transportation, factory orders were up 1.3% in September, the biggest gain since March. Orders dipped by 0.1% in August.
Commerce said durable-goods orders fell a revised 0.6% in September; non-durables rose 1.0%.
Orders in September for capital goods slipped 0.8%. Defense capital goods orders jumped 8.9%.
Excluding defense orders, overall factory orders in September were up 0.2%.
The report showed September factory shipments rose 0.3%. Unfilled orders, a sign of future demand, were up 0.9%. Inventories barely inched ahead.
3) Could Japan's economic malaise strike here in U.S.? From USA Today
If you wonder what haunts Federal Reserve Chairman Ben Bernanke's dreams, it's Japan.
Japan has suffered more than two decades of subpar economic growth, made all the more miserable by falling consumer prices, a stagnant real estate market and a moribund stock market. The worry: that the U.S. economy devolves into something like Japan's.
Some of the similarities between Japan's economic woes and the U.S.' are striking. Both countries have aging populations. Both have ultra-low interest rates, which don't seem to be having much effect in stimulating the economy. And both countries are struggling with high debt loads.
Could the U.S. be entering a multi-decade recession like Japan's? Probably not, experts say: Japan's main problem was reacting too slowly to its problems, and the U.S. has reacted fairly swiftly to the economic crisis. Nevertheless, some of the problems the U.S. faces now could take another two to five years to fix — and investors could learn a thing or two from the Japanese experience if hard times drag on.
The U.S. recession officially began in December 2007 and ended in June 2009, according to the National Bureau of Economic Research. To most people, though, it still feels like a recession.
Unemployment stands at 9.1%, according to the Bureau of Labor Statistics, and gross domestic product grew at a tepid 1.3% in the second quarter and is estimated to have grown at an annual rate of 2.5% from the second quarter to the third.
Miserable as current conditions are, they pale in comparison with Japan's problems. "It's not the lost decade — it's the lost two decades," says Bill Kennedy, portfolio manager for Fidelity International Discovery fund. Japan's period of malaise began in 1990, and the country is still struggling today.
How bad is it? The Nikkei stock index is down 80% from its 1989 peak. Property prices fell more than 80%.
Could the U.S. see a period like Japan's? "It's an increasing possibility," says Ryan Brecht, senior economist at Action Economics. Some of the similarities are striking.
For example, Japan's woes started with an overheated real estate market and frenzied borrowing — two problems that will sound familiar to anyone in the U.S. Home prices in the U.S. have fallen more than 30% since 2006, according to Standard and Poor's. The Japanese real estate market has yet to fully recover from its 1980s excesses.
Both the U.S. and Japan have seen heavy losses in their stock markets. The Wilshire 5000, a broad measure of the U.S. stock market, is down 18% from its 2007 high. Both countries suffer from high debt: Consumer debt in the U.S., and corporate debt in Japan. And the aging populations in both countries mean fewer younger workers will have to support more retirees.
The Japanese made matters worse in three ways:
•Japanese banks were slow to write down bad debt. "They took 10 years to recognize the non-performing loans," Kennedy says. "They kicked the can down the road."
Japan's corporations gradually paid down their debt, but during that time, they weren't making investments, says Kenichi Amaki, portfolio manager for the Matthews funds. Because the companies weren't investing in factories and employment, economic growth remained anemic.
•After the initial meltdown in 1990, the Japanese central bank kept rates too high for too long. Japan's short-term prime lending rate was 6.88% in 1991 and 3.91% in 1992, even though property values plunged 5.11% in 1992. Japan didn't drop rates to nearly zero until 1995.
•Worried by threats of a credit downgrade because of the country's high level of debt, Japan raised its consumption tax in 1997, which slowed the economy just as it was beginning to recover. "It's fair to say that the Japanese repeated what we did in 1937 — raised taxes too soon," says John Silvia, chief economist for Wells Fargo bank.
Japan now has persistent deflation — a period of falling prices. Part of that is because China can supply low-priced, quality goods. "Even though Japan is cutting supply, for every one unit that Japan cuts, China is there with three more units," Amaki says. Also, Japanese consumers have a deflationary mentality: If you wait long enough, prices will fall.
Japan's declining population plays a role, too. The median age in Japan — half are younger, half are older — is 44.8 years, according to the Central Intelligence Agency. In the U.S., it's 36.9 years. In both the U.S. and Japan, the median age is creeping higher, meaning there are fewer young people to contribute to pensions and health care. But the U.S. population continues to grow, which eventually translates into GDP growth.
Finally, Japan has been hit with bad luck. "The balance-sheet recession ended in 2006," Amaki says.
"Companies became more willing to take on debt to finance growth." The 2008 financial crisis soon put an end to that, and the 2011 earthquake, tsunami and nuclear power station meltdown put a big cramp in Japan's GDP.
Why it's different in U.S.
Economists say that the U.S. may avoid a Japan-like period of malaise. The Federal Reserve was very quick to react to the 2008 financial crisis, pushing interest rates down to near zero.
U.S. consumers are paying down their debt and saving more, Amaki says. Although that's a slow process, consumers have come to realize that paying off a debt is like getting a raise: It increases your disposable income. Eventually, that will translate into more spending. "The American consumer won't change," Silvia says.
What could go wrong? Plenty. "When I look at the argument between political parties about whether to rein in spending or raise taxes, it reminds me of what happened in Japan," says Amaki, referring to Japan's increase in consumption taxes. In the short term, he says, raising taxes or slamming on the brakes in spending would be "a terrible idea."
Similarly, a rate increase could weaken economic growth further, Silvia says. "Housing starts are continuing to struggle with mortgage rates at 4%," he says. Raising rates would make the struggle even worse.
Lessons for U.S. investors
For investors, the specter of a long period of malaise means a long period of low returns. Nevertheless, despite the chronically bad market, some Japanese stocks fared well. What investors can learn from Japan:
•Profits. "Stock prices follow earnings," Kennedy says. Although the broad market fared poorly in Japan, some industries fared better than others. Japanese financial services companies, for example, were a disaster. "It's appalling how much wealth destruction they caused," Kennedy says. Not surprisingly, Japanese bank earnings have been poor.
But some Japanese industries did well. Autos, for example, prospered until competition from South Korea cut into sales. (The rising value of the Japanese yen also made Japan's autos more expensive abroad.) Japanese factory automation is now doing well, although it, too, may be threatened by competition from China.
•Price cutting. In a deflationary period, people love bargains. Companies that can undercut competitors with quality items flourish in a deflationary environment. So it's no surprise that domestic Japanese stores that cater to bargain-hunters fared well. "Any area where the consumer feels like he or she is getting a good deal," Kennedy says.
One example — not in Kennedy's portfolio, according to Morningstar — is Don Quijote, a discount store that has grown to 150 stores since 1980. The company offers an eclectic mix of bargain products and amusements, including a yet-unfinished roller-coaster in downtown Tokyo.
•Flexibility. The downfall of many Japanese companies was that they didn't react quickly enough to change. Japan's automakers, for example, have struggled against their Korean competition, as have electronics manufacturers. "The big difference between U.S. and Japanese companies is the ability to reinvent themselves," Kennedy says.
In the U.S., the low value of the dollar has given manufacturers a boost: U.S. goods sold abroad are now cheaper because of the swooning greenback. And, while the U.S. manufacturing sector is always described as shrinking, that's because U.S. factories are highly efficient. The U.S. manufacturing sector remains the largest in the world.
If you're betting on a long, subpar period — and many investors, such as Bill Gross of Pimco are doing just that — then you can learn some lessons from Japan. Look for domestic companies with rising earnings and an ability to cut prices.
And be careful what you wish for, Amaki says. "When I see the arguments between political parties about raising taxes or cutting spending, I think of what happened in Japan in 1997," he says. "It would be a terribly bad idea."
Quote of the Day from Dave Ramsey.com:
If you can't see the bright side of life, polish the dull side. — Anonymous
Wednesday, November 2, 2011
Financial Headline News for Wednesday 11/2
Stocks bounced back after a two day sell off today. Trading rallied at the opening bell, retreated in the middle of the day and recovered late in the day for a wild ride.
There was finally some good news on the hiring front today.The ADP National Employment Report showed on Wednesday the economy's private sector added 110,000 jobs last month, topping economists' expectations for a gain of 101,000 jobs.
Luckily the Fed decided today to take a wait and see approach. It is putting off any new actions so it can gauge the impact of steps it's already taken.
Here are the top financial stories of the day:
1) Dow Bounces Back, Gains 178- From The Wall Street Journal
Stocks bounced back after a two-day selloff, as the Federal Reserve pledged to support the economy.
The Dow Jones Industrial Average gained 178.08 points, or 1.5%, to 11836.04, snapping a two-day losing streak. The Standard & Poor's 500-stock index added 19.62 points, or 1.6%, to 1237.90, while the Nasdaq Composite rose 33.02 points, or 1.3%, to 2639.98.
The Dow gained 219 points in morning trading before paring gains in half by the afternoon. Stocks pushed higher after Fed Chairman Ben Bernanke reiterated at a news conference that the Fed stood ready to ease monetary policy further if growth stalled, saying the central bank was "prepared to take action as appropriate."
In its policy-setting meeting, the central bank kept interest rates unchanged and appeared to show little movement toward further monetary easing, which some in the markets had expected. Separately, the Fed lowered its gross-domestic-product forecast for 2012 to 2.5%, from 2.9%. It now also expects the unemployment rate to be between 8.5% and 8.7% in 2012, higher than its previous forecast of between 7.8% and 8.2%.
All 10 S&P 500 sectors and all but one of the 30 Dow components finished in positive territory. The financial sector was among the day's leaders. Bank of America rose 5%, while American Express advanced 2.7% and J.P. Morgan Chase gained 2.8%.
The gains were helped by U.S. private-sector hiring, which came in slightly stronger than expected. Encouraging earnings reports boosted energy and materials stocks after positive signals from EOG Resources and Pioneer Natural Resources. Alcoa gained 3.2%, Chevron rose 2.4% and Exxon Mobil climbed 1.9%.
Some of the afternoon selloff was triggered by reports that suggested the European Union and International Monetary Fund could withhold further bailout money to Greece until a referendum is held. On Monday and Tuesday, the Dow tumbled a combined 573 points after Greek Prime Minister George Papandreou called for a referendum on the terms over a debt bailout for the nation.
In overseas markets, European stocks pushed higher, with the Stoxx Europe 600 rising 0.9%. Germany's DAX index gained 2.3% and France's CAC-40 index advanced 1.4%. Asian bourses erased early losses to trade mostly higher. China's Shanghai Composite closed up 1.4%, while Hong Kong's Hang Seng Index gained 1.9%. But Japan's Nikkei Stock Average fell 2.2%.
On Thursday, investors will hear from the European Central Bank's new president, Mario Draghi, and will keep an eye on a meeting of the Group of 20 industrial and developing nations in Cannes, France.
Gold futures rose 1%, to settle at $1,728.70 a troy ounce, and crude-oil prices gained 0.4%, to $92.51 a barrel. The dollar lost ground against the euro and the yen.
In corporate news, MasterCard surged 7% after the card company reported a 38% jump in third-quarter profit as spending and transactions made with its credit and debit cards increased.
EOG Resources jumped 12% after its production of more-lucrative liquid fuels continued to surge. Pioneer Natural Resources gained 13% after third-quarter earnings more than tripled amid a bigger-than-expected revenue gain.
JDS Uniphase climbed 8.5% after reporting better-than-expected fiscal first-quarter earnings and revenue, offsetting a lowered current-quarter revenue outlook because of the flooding in Thailand.
Garmin rallied 4.5% after the satellite-navigation company reported better-than-expected third-quarter results and provided an upbeat outlook for the full year.
Diamond Foods slumped 18% after the company said the closing of its $1.5 billion purchase of
Procter & Gamble's Pringles business will be delayed until the first half of 2012.
MF Global Holdings, which filed for bankruptcy protection on Monday, dropped 79% in heavy trading after its trading suspension was lifted.
2) Private sector adds 110,000 jobs in October-From Reuters
U.S. private employers added more jobs than expected in October, and more were added in September than originally reported, while a separate report showed planned layoffs dropped sharply last month.
The ADP National Employment Report showed on Wednesday the economy's private sector added 110,000 jobs last month, topping economists' expectations for a gain of 101,000 jobs. ADP also increased September's job additions, to a gain of 116,000 from the previously reported 91,000.
The report is jointly developed with Macroeconomic Advisers LLC.
"It is not a huge amount better, but the fact that it was better than expected and there was a revision in the last month's number is a pretty encouraging sign," said Peter Jankovskis, co-chief investment officer at Oakbrook Investments LLC in Lisle, Illinois.
U.S. stock index futures added to gains immediately after the report, while Treasuries widened losses and the dollar slightly extended losses against the euro.
That report is expected to show a rise in overall nonfarm payrolls of 95,000 last month, based on a Reuters poll of analysts, and a rise in private payrolls of 120,000.
Economists often refer to the ADP report to fine-tune their expectations for the payrolls numbers, though it is not always accurate in predicting the outcome.
Fears the U.S. economy could be heading for another recession have ebbed in recent months as growth accelerated in the third quarter after a weak first-half performance.
The data came as the Federal Reserve was convening for the second day of its policy-setting meeting with a statement due later in the day. The central bank is expected to take a breather from monetary stimulus measures, and will give an update on its economic forecast.
Earlier on Wednesday a separate report showed the number of planned layoffs at U.S. firms dropped in October after hitting a more than 2-year high the month before, while seasonal positions pushed hiring plans sharply higher.
Employers announced 42,759 planned job cuts last month, tumbling 63.1 percent from 115,730 the month before, according to the report from consultants Challenger, Gray & Christmas, Inc. It was the lowest level in four months.
Hiring plans surged to 159,177 jobs last month from 76,551 in September as companies announced seasonal positions. Retail jobs led the way with 133,940 openings.
In housing data, applications for U.S. home mortgages were little changed last week as purchase demand improved but refinancing activity stagnated, an industry group said.
The Mortgage Bankers Association's seasonally adjusted gauge of loan requests for home purchases rose 1.8 percent, while the index of refinancing applications was off 0.2 percent. The overall index of mortgage application activity edged up 0.2 percent.
3) Fed's outlook for the economy is revised lower-USA Today
The Federal Reserve delivered a bleaker outlook Wednesday for the economy, which it thinks will grow much more slowly and face higher unemployment than it had estimated in June.
The Fed now predicts the economy will grow a scant 1.6% to 1.7% for 2011. For 2012, it estimates growth will range between 2.5% and 2.9%. Both forecasts are roughly a full percentage point lower than its June forecast.
The Fed sees unemployment of between 8.5% and 8.7% next year. In June, the Fed had predicted unemployment would drop next year to as low as 7.8% from 9.1% now.
Even so, the Fed said earlier, after its policy meeting, that the economy had improved since nearly stalling in the spring. As a result, it is putting off any new actions so it can gauge the impact of steps it's already taken.
Fed policymakers made that announcement, after a two-day meeting.
In their statement immediately after the meeting, before delivering their revised outlook, members of the Federal Open Market Committee said the economy has strengthened and consumers have stepped up spending. Still, they said the economy continues to face significant risks, including the debt crisis and risk of recession in Europe.
The Fed left open the possibility of taking steps later to try to boost the sluggish economy. But it gave no hint as to what those moves might be.
"They're noting the better growth numbers but remain pretty cautious," said Michael Feroli, a former Fed economist now with JPMorgan Chase. "They're not celebrating by any means, which probably is appropriate."
The vote on the policy stance was 9-1. Charles Evans, president of the Chicago Federal Reserve Bank, dissented. The statement said Evans wanted to take stronger action to try to boost the economy.
The vote was a shift from the previous two Fed meetings, when three members dissented for the opposite reason: They opposed the Fed's continued efforts to keep interest rates super-low, for fear it could ignite inflation. Those three members, known as inflation "hawks," dropped their opposition this time.
Some analysts say the shift doesn't necessarily mean the Fed is more likely to take additional action soon to try to boost the economy.
"The view of the hawks is that once the decision has been made by the majority, it just causes confusion if they continue to vote to roll back action that has already been taken," said Paul Ashworth, chief U.S. economist at Capital Economics.
Stocks had little initial reaction to the announcement. Prices remained sharply higher, as they had been all morning.
Some analysts say they expect the Fed to take further action to support the economy at coming meetings, given the expectation that growth will remain sub-par.
"Policymakers are keeping the door open because the unemployment rate remains high, and there are clear downside risks from the economic situation in Europe," said Sal Guatieri, senior economist at BMO Capital Markets.
After their September meeting, policymakers said they would shuffle the Fed's investment portfolio to try to further reduce long-term interest rates. And in their previous meeting in August, they said they expected to keep short-term rates near zero until at least mid-2013, unless the economy improved.
The Fed repeated the mid-2013 timeframe in its statement Wednesday. It also said it is continuing its program to rebalance its portfolio to try to lower long-term rates.
The Fed has kept the federal funds rate, a key short-term interest rate, at a record low since December 2008. This is the rate banks charge each other for overnight loans. It serves as a benchmark for millions of business and consumer loans.
At 2: 15 p.m. ET Wednesday, the Fed will release its economic forecasts, and Chairman Ben Bernanke will hold a press conference.
The Fed noted that growth strengthened over the summer, in part because temporary factors that had weighed on the economy in the spring had eased. Consumers are able to spend a little more because gasoline prices have declined from their May peak of roughly $4 a gallon. And auto sales and production have picked up now that supply chains disrupted by the March earthquake in Japan are flowing more freely.
But the Fed said the job market remains weak. And it suggested the troubles in Europe could hurt U.S. growth.
The debt crisis in Europe could force the Fed to lower its economic projections. The Greek prime minister's surprise move to call a referendum on the country's latest rescue plan sparked fears that the debt deal could unravel, that Greece could default on its debt and that the crisis could infect the global financial system.
Even if Europe dodges a financial catastrophe, many economists believe it's headed for a recession that would affect the U.S. and global economies. The Fed expressed such concerns after its August meeting.
Still, the Fed remains deeply divided over what, if any, action to take next.
The actions taken in August and September were adopted on 7-3 votes, the most dissents in nearly 20 years.
Three regional bank presidents — Richard Fisher of Dallas, Charles Plosser of Philadelphia and Narayana Kocherlakota of Minneapolis — all voted no. They have expressed concern that the Fed's policies could lead to high inflation later.
On the other hand, Vice Chair Janet Yellen, Governor Daniel Tarullo, Evans and New York Fed President William Dudley have said the economy is at risk and might need more support.
Two officials pushed for bolder action at the September meeting, according to minutes. The members discussed more bond-buying. Some said it should remain an option.
A brighter outlook for the economy has given the Fed more room to wait. The economy grew at an annual rate of 2.5% in the July-September quarter — best quarterly performance in a year. That was largely because consumers increased their spending at triple the rate from the previous quarter.
The growth is strong enough to show that the economy isn't about to slide into recession. Still, growth would have to be nearly twice as high — consistently — to make a major dent in the unemployment rate, which has been stuck at 9.1% for three straight months.
Evans has proposed that the Fed set benchmarks for raising rates. For example, it could agree not to raise short-term rates until unemployment fell below 7% or the outlook for inflation exceeded 3%. The unemployment rate has hovered around 9% for more than two years, and the Fed's inflation outlook is under 2%.
Quote of the Day from Dave Ramsey.com:
Most people have no idea of the giant capacity we can immediately command when we focus all of our resources on mastering a single area of our lives. — Tony Robbins
There was finally some good news on the hiring front today.The ADP National Employment Report showed on Wednesday the economy's private sector added 110,000 jobs last month, topping economists' expectations for a gain of 101,000 jobs.
Luckily the Fed decided today to take a wait and see approach. It is putting off any new actions so it can gauge the impact of steps it's already taken.
Here are the top financial stories of the day:
1) Dow Bounces Back, Gains 178- From The Wall Street Journal
Stocks bounced back after a two-day selloff, as the Federal Reserve pledged to support the economy.
The Dow Jones Industrial Average gained 178.08 points, or 1.5%, to 11836.04, snapping a two-day losing streak. The Standard & Poor's 500-stock index added 19.62 points, or 1.6%, to 1237.90, while the Nasdaq Composite rose 33.02 points, or 1.3%, to 2639.98.
The Dow gained 219 points in morning trading before paring gains in half by the afternoon. Stocks pushed higher after Fed Chairman Ben Bernanke reiterated at a news conference that the Fed stood ready to ease monetary policy further if growth stalled, saying the central bank was "prepared to take action as appropriate."
In its policy-setting meeting, the central bank kept interest rates unchanged and appeared to show little movement toward further monetary easing, which some in the markets had expected. Separately, the Fed lowered its gross-domestic-product forecast for 2012 to 2.5%, from 2.9%. It now also expects the unemployment rate to be between 8.5% and 8.7% in 2012, higher than its previous forecast of between 7.8% and 8.2%.
All 10 S&P 500 sectors and all but one of the 30 Dow components finished in positive territory. The financial sector was among the day's leaders. Bank of America rose 5%, while American Express advanced 2.7% and J.P. Morgan Chase gained 2.8%.
The gains were helped by U.S. private-sector hiring, which came in slightly stronger than expected. Encouraging earnings reports boosted energy and materials stocks after positive signals from EOG Resources and Pioneer Natural Resources. Alcoa gained 3.2%, Chevron rose 2.4% and Exxon Mobil climbed 1.9%.
Some of the afternoon selloff was triggered by reports that suggested the European Union and International Monetary Fund could withhold further bailout money to Greece until a referendum is held. On Monday and Tuesday, the Dow tumbled a combined 573 points after Greek Prime Minister George Papandreou called for a referendum on the terms over a debt bailout for the nation.
In overseas markets, European stocks pushed higher, with the Stoxx Europe 600 rising 0.9%. Germany's DAX index gained 2.3% and France's CAC-40 index advanced 1.4%. Asian bourses erased early losses to trade mostly higher. China's Shanghai Composite closed up 1.4%, while Hong Kong's Hang Seng Index gained 1.9%. But Japan's Nikkei Stock Average fell 2.2%.
On Thursday, investors will hear from the European Central Bank's new president, Mario Draghi, and will keep an eye on a meeting of the Group of 20 industrial and developing nations in Cannes, France.
Gold futures rose 1%, to settle at $1,728.70 a troy ounce, and crude-oil prices gained 0.4%, to $92.51 a barrel. The dollar lost ground against the euro and the yen.
In corporate news, MasterCard surged 7% after the card company reported a 38% jump in third-quarter profit as spending and transactions made with its credit and debit cards increased.
EOG Resources jumped 12% after its production of more-lucrative liquid fuels continued to surge. Pioneer Natural Resources gained 13% after third-quarter earnings more than tripled amid a bigger-than-expected revenue gain.
JDS Uniphase climbed 8.5% after reporting better-than-expected fiscal first-quarter earnings and revenue, offsetting a lowered current-quarter revenue outlook because of the flooding in Thailand.
Garmin rallied 4.5% after the satellite-navigation company reported better-than-expected third-quarter results and provided an upbeat outlook for the full year.
Diamond Foods slumped 18% after the company said the closing of its $1.5 billion purchase of
Procter & Gamble's Pringles business will be delayed until the first half of 2012.
MF Global Holdings, which filed for bankruptcy protection on Monday, dropped 79% in heavy trading after its trading suspension was lifted.
2) Private sector adds 110,000 jobs in October-From Reuters
U.S. private employers added more jobs than expected in October, and more were added in September than originally reported, while a separate report showed planned layoffs dropped sharply last month.
The ADP National Employment Report showed on Wednesday the economy's private sector added 110,000 jobs last month, topping economists' expectations for a gain of 101,000 jobs. ADP also increased September's job additions, to a gain of 116,000 from the previously reported 91,000.
The report is jointly developed with Macroeconomic Advisers LLC.
"It is not a huge amount better, but the fact that it was better than expected and there was a revision in the last month's number is a pretty encouraging sign," said Peter Jankovskis, co-chief investment officer at Oakbrook Investments LLC in Lisle, Illinois.
U.S. stock index futures added to gains immediately after the report, while Treasuries widened losses and the dollar slightly extended losses against the euro.
That report is expected to show a rise in overall nonfarm payrolls of 95,000 last month, based on a Reuters poll of analysts, and a rise in private payrolls of 120,000.
Economists often refer to the ADP report to fine-tune their expectations for the payrolls numbers, though it is not always accurate in predicting the outcome.
Fears the U.S. economy could be heading for another recession have ebbed in recent months as growth accelerated in the third quarter after a weak first-half performance.
The data came as the Federal Reserve was convening for the second day of its policy-setting meeting with a statement due later in the day. The central bank is expected to take a breather from monetary stimulus measures, and will give an update on its economic forecast.
Earlier on Wednesday a separate report showed the number of planned layoffs at U.S. firms dropped in October after hitting a more than 2-year high the month before, while seasonal positions pushed hiring plans sharply higher.
Employers announced 42,759 planned job cuts last month, tumbling 63.1 percent from 115,730 the month before, according to the report from consultants Challenger, Gray & Christmas, Inc. It was the lowest level in four months.
Hiring plans surged to 159,177 jobs last month from 76,551 in September as companies announced seasonal positions. Retail jobs led the way with 133,940 openings.
In housing data, applications for U.S. home mortgages were little changed last week as purchase demand improved but refinancing activity stagnated, an industry group said.
The Mortgage Bankers Association's seasonally adjusted gauge of loan requests for home purchases rose 1.8 percent, while the index of refinancing applications was off 0.2 percent. The overall index of mortgage application activity edged up 0.2 percent.
3) Fed's outlook for the economy is revised lower-USA Today
The Federal Reserve delivered a bleaker outlook Wednesday for the economy, which it thinks will grow much more slowly and face higher unemployment than it had estimated in June.
The Fed now predicts the economy will grow a scant 1.6% to 1.7% for 2011. For 2012, it estimates growth will range between 2.5% and 2.9%. Both forecasts are roughly a full percentage point lower than its June forecast.
The Fed sees unemployment of between 8.5% and 8.7% next year. In June, the Fed had predicted unemployment would drop next year to as low as 7.8% from 9.1% now.
Even so, the Fed said earlier, after its policy meeting, that the economy had improved since nearly stalling in the spring. As a result, it is putting off any new actions so it can gauge the impact of steps it's already taken.
Fed policymakers made that announcement, after a two-day meeting.
In their statement immediately after the meeting, before delivering their revised outlook, members of the Federal Open Market Committee said the economy has strengthened and consumers have stepped up spending. Still, they said the economy continues to face significant risks, including the debt crisis and risk of recession in Europe.
The Fed left open the possibility of taking steps later to try to boost the sluggish economy. But it gave no hint as to what those moves might be.
"They're noting the better growth numbers but remain pretty cautious," said Michael Feroli, a former Fed economist now with JPMorgan Chase. "They're not celebrating by any means, which probably is appropriate."
The vote on the policy stance was 9-1. Charles Evans, president of the Chicago Federal Reserve Bank, dissented. The statement said Evans wanted to take stronger action to try to boost the economy.
The vote was a shift from the previous two Fed meetings, when three members dissented for the opposite reason: They opposed the Fed's continued efforts to keep interest rates super-low, for fear it could ignite inflation. Those three members, known as inflation "hawks," dropped their opposition this time.
Some analysts say the shift doesn't necessarily mean the Fed is more likely to take additional action soon to try to boost the economy.
"The view of the hawks is that once the decision has been made by the majority, it just causes confusion if they continue to vote to roll back action that has already been taken," said Paul Ashworth, chief U.S. economist at Capital Economics.
Stocks had little initial reaction to the announcement. Prices remained sharply higher, as they had been all morning.
Some analysts say they expect the Fed to take further action to support the economy at coming meetings, given the expectation that growth will remain sub-par.
"Policymakers are keeping the door open because the unemployment rate remains high, and there are clear downside risks from the economic situation in Europe," said Sal Guatieri, senior economist at BMO Capital Markets.
After their September meeting, policymakers said they would shuffle the Fed's investment portfolio to try to further reduce long-term interest rates. And in their previous meeting in August, they said they expected to keep short-term rates near zero until at least mid-2013, unless the economy improved.
The Fed repeated the mid-2013 timeframe in its statement Wednesday. It also said it is continuing its program to rebalance its portfolio to try to lower long-term rates.
The Fed has kept the federal funds rate, a key short-term interest rate, at a record low since December 2008. This is the rate banks charge each other for overnight loans. It serves as a benchmark for millions of business and consumer loans.
At 2: 15 p.m. ET Wednesday, the Fed will release its economic forecasts, and Chairman Ben Bernanke will hold a press conference.
The Fed noted that growth strengthened over the summer, in part because temporary factors that had weighed on the economy in the spring had eased. Consumers are able to spend a little more because gasoline prices have declined from their May peak of roughly $4 a gallon. And auto sales and production have picked up now that supply chains disrupted by the March earthquake in Japan are flowing more freely.
But the Fed said the job market remains weak. And it suggested the troubles in Europe could hurt U.S. growth.
The debt crisis in Europe could force the Fed to lower its economic projections. The Greek prime minister's surprise move to call a referendum on the country's latest rescue plan sparked fears that the debt deal could unravel, that Greece could default on its debt and that the crisis could infect the global financial system.
Even if Europe dodges a financial catastrophe, many economists believe it's headed for a recession that would affect the U.S. and global economies. The Fed expressed such concerns after its August meeting.
Still, the Fed remains deeply divided over what, if any, action to take next.
The actions taken in August and September were adopted on 7-3 votes, the most dissents in nearly 20 years.
Three regional bank presidents — Richard Fisher of Dallas, Charles Plosser of Philadelphia and Narayana Kocherlakota of Minneapolis — all voted no. They have expressed concern that the Fed's policies could lead to high inflation later.
On the other hand, Vice Chair Janet Yellen, Governor Daniel Tarullo, Evans and New York Fed President William Dudley have said the economy is at risk and might need more support.
Two officials pushed for bolder action at the September meeting, according to minutes. The members discussed more bond-buying. Some said it should remain an option.
A brighter outlook for the economy has given the Fed more room to wait. The economy grew at an annual rate of 2.5% in the July-September quarter — best quarterly performance in a year. That was largely because consumers increased their spending at triple the rate from the previous quarter.
The growth is strong enough to show that the economy isn't about to slide into recession. Still, growth would have to be nearly twice as high — consistently — to make a major dent in the unemployment rate, which has been stuck at 9.1% for three straight months.
Evans has proposed that the Fed set benchmarks for raising rates. For example, it could agree not to raise short-term rates until unemployment fell below 7% or the outlook for inflation exceeded 3%. The unemployment rate has hovered around 9% for more than two years, and the Fed's inflation outlook is under 2%.
Quote of the Day from Dave Ramsey.com:
Most people have no idea of the giant capacity we can immediately command when we focus all of our resources on mastering a single area of our lives. — Tony Robbins
Tuesday, November 1, 2011
Financial Headline News for Tuesday 11/1
Who could have seen this happening after Wall Street was popping corks from champagne bottles last week declaring the European crisis was over? It is not over and is not going anywhere because Greece refuses to address their debt!This new European uncertainty took down all the markets today.
After losing tons of customers to credit unions, Bank of America came to their senses and dropped the $5 debit card monthly fee.
Its only a matter of time now before the handcuffs come out for Corslime as MF Global admitted to federal regulators that money had been diverted out of customer accounts.
Here are the top financial stories of the day:
1) Greek vote brings uncertainty back to Wall Street-From Reuters
Stocks tumbled on Tuesday after investors were blindsided by a surprise call for a Greek referendum on an EU bailout plan, casting doubt on the sustainability of the recent market rally.
The S&P 500 has slid more than 5 percent so far this week in moves reminiscent of the stomach-churning market swings seen over the past two months and after investors thought the worst of the euro zone debt crisis was over.
The speedy pullback comes after stocks rebounded to post their best month in 20 years in October. The gains were fueled by hope for an eventual deal to rescue Greece, finally agreed upon at last week's European Union summit.
"The fact that we gave it back as quick as we did in two days is very concerning," said Ari Wald, an analyst at Brown Brothers Harriman.
"It looks very much as though it was a lot of short-covering, a lot of bears found themselves on the wrong side of the trade," he said of the October rally.
Analysts said if Greek voters reject the unpopular bailout in a vote proposed by Greek Premier George Papandreou, it would likely result in a "hard default" by Greece, causing bigger losses for banks and raising the threat of systemic risk.
The news slammed European stocks, particularly the region's banks, which slumped 6 percent. U.S. banks were also hit hard. Morgan Stanley, which investors worry has heavy exposure to Europe, fell 8 percent to $16.23.
Indexes swung sharply as successive European lawmakers lined up behind the bailout package but returned to close near session lows after a Greek government spokesman said the prime minister told his cabinet the referendum would go ahead.
The Dow Jones industrial average fell 297.05 points, or 2.48 percent, at 11,657.96. The Standard & Poor's 500 Index lost 35.02 points, or 2.79 percent, at 1,218.28. The Nasdaq Composite Index dropped 77.45 points, or 2.89 percent, at 2,606.96.
The selloff came on sharp spike in volume with 10.3 billion shares traded on the NYSE, the Amex, and the Nasdaq, 22 percent above its 20-day moving average, while the CBOE volatility index jumped 16 percent to 34.77, its highest since around mid-October.
Nearly six stocks fell on the NYSE for every one that rose.
Adding to the gloom, factory activity in Asia's big export economies slowed to the weakest rate in nearly three years in October, while UK manufacturing suffered a sharp decline, reigniting fears of a global slowdown.
The S&P 500 traded below its 14-day moving average for the first time since October 7, pointing to a possible shift in short-term momentum. The benchmark also broke through support at 1,220.
Wald said the S&P 500's 50-day moving average was now key support on the downside.
"You have got to cut it short at that 50-day moving average," he said. "If we can't hold the 50-day, which is around 1,190, it wouldn't be a very good technical picture."
Economic data showed the pace of growth in the U.S. manufacturing sector slowed in October, though improvement in new orders suggested resiliency in the sector.
"If we can keep Europe out of the headlines and Washington out of the headlines and just focus on the economic data and the corporate data we'd be in great shape," said John Canally, investment strategist and economist for LPL Financial in Boston.
In a move that put further pressure on commodity prices, Japan vowed to step into foreign exchange markets again. The government sold a record $98.7 billion on Monday in yen to curb its strength, which is hurting Japan's export-based economy.
The U.S. dollar index rose 1.5 percent. U.S. oil futures settled 1.07 percent down at $92.19, and copper prices fell 3 percent. Many commodities are priced in the greenback, making a spike in dollar prices more expensive for traders in other currencies and saps demand.
2) Bank of America drops $5 debit card fee plan-From Reuters
Bank of America Corp scrapped plans to charge a $5 per-month debit fee, handing a victory to consumers and protesters angry with big banks.
The second-biggest U.S. bank, whose shares were down over 3 percent, said on Tuesday that the move was in response to customer feedback and competition. Bank of America was under pressure to make the change as rivals backtracked from plans to charge customers for using their debit cards.
"It's a sign of consumer power in action," said Norma Garcia, manager of the financial services program for Consumers Union. "This is a sign of the marketplace working."
Last week JPMorgan Chase & Co and Wells Fargo & Co decided to cancel test programs, while SunTrust Banks Inc and Regions Financial Corp said on Monday that they would end monthly charges and reimburse customers.
U.S. Sen. Richard Durbin, the author of the swipe fee legislation, told reporters on Capitol Hill that the reversal by major banks was "an amazing victory" for consumers across the country.
"What we have basically proven is that with transparency and competition, consumers will make a choice about where they want to do business and walk away from those they think are not treating them fairly or are overcharging them," the Illinois Democrat said. "I hope the banking industry learns from this."
Anti-Wall-Street protesters, who set up camp in a New York City park more than six weeks ago to demonstrate economic inequality, also claimed the move by Bank of America as a victory, but one they shared with several other anti-bank initiatives.
"It's certainly an indication that Occupy Wall Street and the occupations that are going on across the country are steering public discussion," said Ed Needham, a spokesman for the Occupy Wall Street movement.
"This is what the movement would consider a very, very small first step on rectifying an oppressive dynamic between the financial services industry and the 99 percent."
Protesters say they are upset that the billions of dollars in bank bailouts doled out during the recession allowed banks to resume earning huge profits while average Americans have had no relief from high unemployment and job insecurity.
Needham said that among the other initiatives that could be credited with forcing the back-down by Bank of America was the month-long Bank Transfer Day campaign.
The Bank Transfer Day campaign, started by 27-year-old Californian Kristen Christian on Facebook on October 4, is encouraging people to close their bank accounts and move their money to credit unions on Saturday.
Bank of America, which planned to start charging the fee next year, began softening its stance last week. The Charlotte, North Carolina, bank planned to give customers more ways to avoid the charge, such as maintaining minimum balances, having paychecks direct-deposited or using their Bank of America credit cards
"We have listened to our customers very closely over the last few weeks and recognize their concern with our proposed debit usage fee," Bank of America Co-Chief Operating Officer David Darnell said in a statement.
The reversal is another embarrassing about-face for Bank of America Chief Executive Officer Brian Moynihan. Last spring, he disclosed plans for a modest dividend increase this year, only to have the Federal Reserve Board deny the request.
Nancy Bush, a longtime bank analyst and contributing editor at SNL Financial, said she was surprised the bank backtracked after Moynihan's "flip-flop" on the dividend.
"If you're going to set a policy, set a policy," Bush said. "Talk it through beforehand, think through the ramifications and stick to your guns."
Bank of America's third-quarter results show Moynihan is making progress in turning around the company but his management team's communications skills "still need work," she said. The bank was also a victim of bad timing and joined other banks in misjudging customer sentiment, Bush said.
Shares of Bank of America were down 3.1 percent at $6.62 in afternoon trading. The KBW Bank Index was down 2.2 percent after a proposed Greek referendum threatened to upend a European bailout plan to contain the sovereign debt crisis.
3) MF Global Acknowledged Diverting Customer Funds-From The Wall Street Journal
MF Global admitted to federal regulators that money had been diverted out of customer accounts, according to a federal official who said the move violated the law.
The Wall Street brokerage, which filed for bankruptcy protection Monday, acknowledged the shortfall amid mounting questions from regulators as they went through the firm's books while trying to facilitate a sale to Interactive Brokers Group Inc., the official said. Regulators still don't know where the customer funds went, who directed the move or how widespread the practice was, the official said.
Regulators are still working to determine whether MF Global had a continuing problem with handling customer funds or if executives diverted funds as the company's financial situation deteriorated and grew more desperate, the official said.
MF Global didn't immediately respond to requests for comment.
Separately, MF Global hired restructuring adviser FTI Consulting Inc., people familiar with the matter said. The details of the assignment are unclear. An FTI spokeswoman didn't immediately respond to a request for comment.
FTI provides restructuring advice to distressed companies, helping them manage cash and other operations and sometimes filling interim executive roles. The firm competes with Alvarez & Marsal and AlixPartners, among others. Alvarez & Marsal has been overseeing the liquidation of Lehman Brothers Holdings Inc.'s estate since the bank filed for bankruptcy protection three years ago.
The regulatory inquiry comes as the chief executive officer of futures-exchange operator CME Group Inc. said Tuesday that a mismatch in MF Global's books, centered on how it handled billions in customer funds, was still being investigated after CME and other exchanges on Monday took emergency action to bar the firm and its clients from doing further business.
CME Group said that exchange staff and regulators were still trying to get a handle on the collapse of MF Global. "CME has determined that MF Global is not in compliance with [Commodity Futures
Trading Commission] and CME customer segregation requirements," said Craig Donohue, chief executive of CME, on a conference call discussing third-quarter results for the world's biggest futures exchange operator.
Currently, Mr. Donohue said, officials are "unable to determine the size or scope of the failure."
The comments deepen questions around the recordkeeping of MF Global, one of the biggest players on derivatives exchanges around the world. By law, clearing firms like MF Global are required to "segregate" the funds of their customers from the firm's own assets and from one another. If a broker fails, separate accounts make it easier to transfer customers' futures positions and funds to another broker.
The fact that customer funds aren't where they're supposed to be is not a good sign, said Dan Waldman, an attorney at Arnold & Porter and a former CFTC general counsel. "If a broker is dipping into the [segregated] funds to cover other expenses, that's a problem," said Mr. Waldman, who has no affiliation with the case at this time.
If account irregularities at MF Global were a one-time problem, regulators might have had a hard time detecting the issue, Mr. Waldman added. But an ongoing problem that went undetected would raise questions about the current regulatory system.
Obviously when customers are at risk and when the system doesn't work the way it was supposed to, people take a look and see if there's something else that needs to be done or is there a better system that needs to be built," Mr. Waldman said.
Mr. Donohue said Tuesday that the situation with MF Global remained "very fluid" and that the exchange continued to work with MF Global and its clients to transfer trading positions to other clearing firms.
The bankruptcy process for firms that run both a broker-dealer and futures-clearing business is complicated, Mr. Donohue said, because it involves two different regimes for protection of customer assets.
CME's regulatory responsibilities as an exchange involve auditing and supervising the members of its markets and clearinghouse, and Mr. Donohue said the exchange group was working with regulators to resolve issues related to customer collateral and trading positions held with MF Global.
"We are working with the CFTC and will be contacting the trustee to facilitate the transfer of customer positions and a portion of the supporting collateral," he said.
Quote of the Day from Dave Ramsey.com:
The most important thing about goals is having one. — Geoffry F. Abert
After losing tons of customers to credit unions, Bank of America came to their senses and dropped the $5 debit card monthly fee.
Its only a matter of time now before the handcuffs come out for Corslime as MF Global admitted to federal regulators that money had been diverted out of customer accounts.
Here are the top financial stories of the day:
1) Greek vote brings uncertainty back to Wall Street-From Reuters
Stocks tumbled on Tuesday after investors were blindsided by a surprise call for a Greek referendum on an EU bailout plan, casting doubt on the sustainability of the recent market rally.
The S&P 500 has slid more than 5 percent so far this week in moves reminiscent of the stomach-churning market swings seen over the past two months and after investors thought the worst of the euro zone debt crisis was over.
The speedy pullback comes after stocks rebounded to post their best month in 20 years in October. The gains were fueled by hope for an eventual deal to rescue Greece, finally agreed upon at last week's European Union summit.
"The fact that we gave it back as quick as we did in two days is very concerning," said Ari Wald, an analyst at Brown Brothers Harriman.
"It looks very much as though it was a lot of short-covering, a lot of bears found themselves on the wrong side of the trade," he said of the October rally.
Analysts said if Greek voters reject the unpopular bailout in a vote proposed by Greek Premier George Papandreou, it would likely result in a "hard default" by Greece, causing bigger losses for banks and raising the threat of systemic risk.
The news slammed European stocks, particularly the region's banks, which slumped 6 percent. U.S. banks were also hit hard. Morgan Stanley, which investors worry has heavy exposure to Europe, fell 8 percent to $16.23.
Indexes swung sharply as successive European lawmakers lined up behind the bailout package but returned to close near session lows after a Greek government spokesman said the prime minister told his cabinet the referendum would go ahead.
The Dow Jones industrial average fell 297.05 points, or 2.48 percent, at 11,657.96. The Standard & Poor's 500 Index lost 35.02 points, or 2.79 percent, at 1,218.28. The Nasdaq Composite Index dropped 77.45 points, or 2.89 percent, at 2,606.96.
The selloff came on sharp spike in volume with 10.3 billion shares traded on the NYSE, the Amex, and the Nasdaq, 22 percent above its 20-day moving average, while the CBOE volatility index jumped 16 percent to 34.77, its highest since around mid-October.
Nearly six stocks fell on the NYSE for every one that rose.
Adding to the gloom, factory activity in Asia's big export economies slowed to the weakest rate in nearly three years in October, while UK manufacturing suffered a sharp decline, reigniting fears of a global slowdown.
The S&P 500 traded below its 14-day moving average for the first time since October 7, pointing to a possible shift in short-term momentum. The benchmark also broke through support at 1,220.
Wald said the S&P 500's 50-day moving average was now key support on the downside.
"You have got to cut it short at that 50-day moving average," he said. "If we can't hold the 50-day, which is around 1,190, it wouldn't be a very good technical picture."
Economic data showed the pace of growth in the U.S. manufacturing sector slowed in October, though improvement in new orders suggested resiliency in the sector.
"If we can keep Europe out of the headlines and Washington out of the headlines and just focus on the economic data and the corporate data we'd be in great shape," said John Canally, investment strategist and economist for LPL Financial in Boston.
In a move that put further pressure on commodity prices, Japan vowed to step into foreign exchange markets again. The government sold a record $98.7 billion on Monday in yen to curb its strength, which is hurting Japan's export-based economy.
The U.S. dollar index rose 1.5 percent. U.S. oil futures settled 1.07 percent down at $92.19, and copper prices fell 3 percent. Many commodities are priced in the greenback, making a spike in dollar prices more expensive for traders in other currencies and saps demand.
2) Bank of America drops $5 debit card fee plan-From Reuters
Bank of America Corp scrapped plans to charge a $5 per-month debit fee, handing a victory to consumers and protesters angry with big banks.
The second-biggest U.S. bank, whose shares were down over 3 percent, said on Tuesday that the move was in response to customer feedback and competition. Bank of America was under pressure to make the change as rivals backtracked from plans to charge customers for using their debit cards.
"It's a sign of consumer power in action," said Norma Garcia, manager of the financial services program for Consumers Union. "This is a sign of the marketplace working."
Last week JPMorgan Chase & Co and Wells Fargo & Co decided to cancel test programs, while SunTrust Banks Inc and Regions Financial Corp said on Monday that they would end monthly charges and reimburse customers.
U.S. Sen. Richard Durbin, the author of the swipe fee legislation, told reporters on Capitol Hill that the reversal by major banks was "an amazing victory" for consumers across the country.
"What we have basically proven is that with transparency and competition, consumers will make a choice about where they want to do business and walk away from those they think are not treating them fairly or are overcharging them," the Illinois Democrat said. "I hope the banking industry learns from this."
Anti-Wall-Street protesters, who set up camp in a New York City park more than six weeks ago to demonstrate economic inequality, also claimed the move by Bank of America as a victory, but one they shared with several other anti-bank initiatives.
"It's certainly an indication that Occupy Wall Street and the occupations that are going on across the country are steering public discussion," said Ed Needham, a spokesman for the Occupy Wall Street movement.
"This is what the movement would consider a very, very small first step on rectifying an oppressive dynamic between the financial services industry and the 99 percent."
Protesters say they are upset that the billions of dollars in bank bailouts doled out during the recession allowed banks to resume earning huge profits while average Americans have had no relief from high unemployment and job insecurity.
Needham said that among the other initiatives that could be credited with forcing the back-down by Bank of America was the month-long Bank Transfer Day campaign.
The Bank Transfer Day campaign, started by 27-year-old Californian Kristen Christian on Facebook on October 4, is encouraging people to close their bank accounts and move their money to credit unions on Saturday.
Bank of America, which planned to start charging the fee next year, began softening its stance last week. The Charlotte, North Carolina, bank planned to give customers more ways to avoid the charge, such as maintaining minimum balances, having paychecks direct-deposited or using their Bank of America credit cards
"We have listened to our customers very closely over the last few weeks and recognize their concern with our proposed debit usage fee," Bank of America Co-Chief Operating Officer David Darnell said in a statement.
The reversal is another embarrassing about-face for Bank of America Chief Executive Officer Brian Moynihan. Last spring, he disclosed plans for a modest dividend increase this year, only to have the Federal Reserve Board deny the request.
Nancy Bush, a longtime bank analyst and contributing editor at SNL Financial, said she was surprised the bank backtracked after Moynihan's "flip-flop" on the dividend.
"If you're going to set a policy, set a policy," Bush said. "Talk it through beforehand, think through the ramifications and stick to your guns."
Bank of America's third-quarter results show Moynihan is making progress in turning around the company but his management team's communications skills "still need work," she said. The bank was also a victim of bad timing and joined other banks in misjudging customer sentiment, Bush said.
Shares of Bank of America were down 3.1 percent at $6.62 in afternoon trading. The KBW Bank Index was down 2.2 percent after a proposed Greek referendum threatened to upend a European bailout plan to contain the sovereign debt crisis.
3) MF Global Acknowledged Diverting Customer Funds-From The Wall Street Journal
MF Global admitted to federal regulators that money had been diverted out of customer accounts, according to a federal official who said the move violated the law.
The Wall Street brokerage, which filed for bankruptcy protection Monday, acknowledged the shortfall amid mounting questions from regulators as they went through the firm's books while trying to facilitate a sale to Interactive Brokers Group Inc., the official said. Regulators still don't know where the customer funds went, who directed the move or how widespread the practice was, the official said.
Regulators are still working to determine whether MF Global had a continuing problem with handling customer funds or if executives diverted funds as the company's financial situation deteriorated and grew more desperate, the official said.
MF Global didn't immediately respond to requests for comment.
Separately, MF Global hired restructuring adviser FTI Consulting Inc., people familiar with the matter said. The details of the assignment are unclear. An FTI spokeswoman didn't immediately respond to a request for comment.
FTI provides restructuring advice to distressed companies, helping them manage cash and other operations and sometimes filling interim executive roles. The firm competes with Alvarez & Marsal and AlixPartners, among others. Alvarez & Marsal has been overseeing the liquidation of Lehman Brothers Holdings Inc.'s estate since the bank filed for bankruptcy protection three years ago.
The regulatory inquiry comes as the chief executive officer of futures-exchange operator CME Group Inc. said Tuesday that a mismatch in MF Global's books, centered on how it handled billions in customer funds, was still being investigated after CME and other exchanges on Monday took emergency action to bar the firm and its clients from doing further business.
CME Group said that exchange staff and regulators were still trying to get a handle on the collapse of MF Global. "CME has determined that MF Global is not in compliance with [Commodity Futures
Trading Commission] and CME customer segregation requirements," said Craig Donohue, chief executive of CME, on a conference call discussing third-quarter results for the world's biggest futures exchange operator.
Currently, Mr. Donohue said, officials are "unable to determine the size or scope of the failure."
The comments deepen questions around the recordkeeping of MF Global, one of the biggest players on derivatives exchanges around the world. By law, clearing firms like MF Global are required to "segregate" the funds of their customers from the firm's own assets and from one another. If a broker fails, separate accounts make it easier to transfer customers' futures positions and funds to another broker.
The fact that customer funds aren't where they're supposed to be is not a good sign, said Dan Waldman, an attorney at Arnold & Porter and a former CFTC general counsel. "If a broker is dipping into the [segregated] funds to cover other expenses, that's a problem," said Mr. Waldman, who has no affiliation with the case at this time.
If account irregularities at MF Global were a one-time problem, regulators might have had a hard time detecting the issue, Mr. Waldman added. But an ongoing problem that went undetected would raise questions about the current regulatory system.
Obviously when customers are at risk and when the system doesn't work the way it was supposed to, people take a look and see if there's something else that needs to be done or is there a better system that needs to be built," Mr. Waldman said.
Mr. Donohue said Tuesday that the situation with MF Global remained "very fluid" and that the exchange continued to work with MF Global and its clients to transfer trading positions to other clearing firms.
The bankruptcy process for firms that run both a broker-dealer and futures-clearing business is complicated, Mr. Donohue said, because it involves two different regimes for protection of customer assets.
CME's regulatory responsibilities as an exchange involve auditing and supervising the members of its markets and clearinghouse, and Mr. Donohue said the exchange group was working with regulators to resolve issues related to customer collateral and trading positions held with MF Global.
"We are working with the CFTC and will be contacting the trustee to facilitate the transfer of customer positions and a portion of the supporting collateral," he said.
Quote of the Day from Dave Ramsey.com:
The most important thing about goals is having one. — Geoffry F. Abert
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