(XLF) Stock Market News for October 10, 2011 – Market News

Markets slipped modestly lower on Friday after the downgrade of Italy and Spain’s debt ratings overshadowed encouraging nonfarm payroll data. The Dow snapped its three-day winning streak, but the benchmarks ended with gains for the week spurred on by hopes of a resolution to the European debt crisis.

The Dow Jones Industrial Average (DJIA) lost 0.2% to settle at 11,103.12. The Standard & Poor 500 (S&P 500) was down to 1,155.46, shedding 0.8% and the Nasdaq Composite Index inched down 1.1% to finish the day at 2,479.35. The fear-gauge CBOE Volatility Index (VIX) dropped marginally and hovered over 36. On the New York Stock Exchange, Amex and Nasdaq, consolidated volumes were 8.76 billion shares, higher than this year’s daily average of 8.03 billion shares. On the NYSE, for every 11 stocks that moved down, only 4 stocks managed to finish higher. However, the benchmarks closed in the green for the week, as the Dow, S&P 500 and Nasdaq gained 1.7%, 2.1% and 2.7%, respectively.

Markets initially enjoyed a positive run as nonfarm payroll data not only showed an improvement but came in significantly higher than economists’ expectations. A sluggish jobs market has been a constant threat to the markets, displaying an uptrend only in patches. Investors were therefore greatly relieved when the US Department of Labor reported that nonfarm payroll employment was up by 103,000 in September.  According to the report: “The increase in employment partially reflected the return to payrolls of about 45,000 telecommunications workers who had been on strike in August. In September, job gains occurred in professional and business services, health care, and construction. Government employment continued to trend down”. The figure was not only higher than the previous month’s, but was also nearly twice as much as consensus expectations, which was pegged at 58, 000. Additionally, nonfarm payroll data for the month of July and August were also revised upward. However, the unemployment rate remained flat at 9.1%.

However, the markets failed to draw enough impetus from the report as concerns from the European front dampened sentiment. Citing a deteriorating euro-zone debt crisis, Fitch Ratings downgraded the sovereign credit rating of Italy by a notch and of Spain by two notches. The ratings agency said: “A credible and comprehensive solution to the (euro zone) crisis is politically and technically complex and will take time to put in place”. Italy’s rating was brought down to A+ from AA- and Spain’s rating was cut from AA+ to AA-.

On Friday, the banking sector was one of the major decliners and the Financial Select Sector SPDR (XLF) fund dropped 3.6%. Bank of America Corporation (NYSE:BAC), The Goldman Sachs Group, Inc. (NYSE:GS), Morgan Stanley (NYSE:MS), Citigroup, Inc. (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Company (NYSE:WFC) and U.S. Bancorp (NYSE:USB) declined by 6.1%, 5.4%, 6.2%, 5.3%, 5.2%, 3.3% and 2.8%, respectively.

European developments have guided the markets throughout the week. On Monday, fears arising from the Greek debt crisis pushed the benchmarks lower and forced the S&P 500 to log its lowest closing level since September 2010. Then, reports of European finance ministers working out ways to shore up banks helped the markets end higher. Additionally, reports of Franco-Belgian lender Dexia being restructured, a development that will restrict the negative impact on the banking sector, also boosted sentiment. Meanwhile, European Union Economic and Monetary Affairs Commissioner Olli Rehn was quoted as saying that there is an “increasingly shared view” that the continent is in dire need of coordinated action to tackle debt concerns. On Thursday, markets enjoyed gains after European Commission President Jose Manuel Barroso urged member nations to recapitalize their regional banks. These largely positive developments helped the benchmarks end the week on a winning note. The S&P 500 also was able to reverse its two-week losing run.

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