December 5, 2011, MarketWatch
“The clock is ticking because Italy’s yields went over 7%,” he said of the rising costs of borrowing for Italy’s government, which last week exceeded what Pado calls the “tipping point: Anything below 7% makes it easier, and above it is hurting their ability to repair themselves.”
After rising 167 points, the Dow Jones Industrial Average /quotes/zigman/627449/delayed DJIA +0.65% ended at 12,097.83, up 78.41 points, or 0.7%.
The S&P 500 /quotes/zigman/3870025 SPX +1.03% rose 12.80 points, or 1%, to 1,257.08, with financial firms leading sector gains and health-care companies lagging.
The Nasdaq Composite Index /quotes/zigman/123127 COMP +1.10% gained 28.83 points, or 1.1%, to 2,655.76.
The session had both the S&P 500 and the Nasdaq rejoining the Dow industrials in positive turf for 2011. By the closing bell, the S&P 500 was back in negative territory for the year, although just barely.
For every stock that lost ground more than three gained on the New York Stock Exchange, where nearly 893 million shares traded. Composite volume topped 4.1 billion.
U.S. stocks had rallied, extending the market’s best weekly performance in several years, after the leaders of Germany and France called for a new rules to address regional troubles.
But stocks lost much of their steam late in Monday’s session after the Financial Times reported rating agency Standard’s & Poor’s had threatened European AAA sovereigns with “creditwatch negative.”
“They are reporting this as though it’s new news. Right now everybody should be on some sort of negative watch; certainly nobody is on positive watch,” commented Pado at Cantor Fitzgerald.
Then, Bloomberg News reported S&P would put all 17 euro-area nations on review for a possible downgrade, citing two officials familiar with the S&P decision.
The euro area’s six AAA-rated countries are among the countries to be put on a negative outlook, and their credit ratings could be trimmed depending on how an EU summit pans out Friday, Bloomberg said.
Three factors have combined to create “a natural recipe to get a rally,” said T. Doug Dale, an adviser with Security Ballew Wealth Management in Jackson, Miss., citing an oversold stock market, U.S. Treasury yields at extremely low levels and the coordinated effort of more stimulus from central banks around the world.
While the market was set up for a fourth-quarter surge, Dale believes the upside for the remainder of the year won’t exceed another 5% to 6% rise, which he believes will be followed by a high-to-low drop of as much as 30% on the S&P 500 in the year ahead, or as he put it, “something that could put you below 1,000.”
“I’m in the camp that believes what is occurring right now [in Europe] is more of a Band-Aid than any type of fix,” he added.
In a joint news conference after meeting in Paris, French President Nicolas Sarkozy and German Chancellor Angela Merkel called for another European Union treaty to establish tougher fiscal rules for euro-region governments. “Our decisions were to craft new rules to avoid a repeat” of the crisis, according to Sarkozy.
With a European Central Bank slated to hold a policy meeting Thursday and an EU summit in Brussels coming on Friday, U.S. Treasury Secretary Timothy Geithner is scheduled to be in Frankfurt Tuesday.
Italian borrowing costs fell as the country’s prime minister began attempting to convince parliament to back a 30 billion euro ($40 billion) plan to reduce spending and support growth.
“There are growing hopes on both sides of the Atlantic that policy makers will play a more constructive role in helping the economy and markets after a year in which they generally did more harm than good,” David Kelly, chief market strategist at J.P. Morgan Funds, wrote in emailed comments.
On Monday, Wall Street offered virtually no reaction as an index of U.S. nonmanufacturing activity fell to 52 in November from 52.9 in October, while orders for U.S. factory goods declined 0.4% in October.
“In the weeks ahead, markets will again be driven in part by economic numbers and in part by policy decisions,” said Kelly.