Weekly Market Wrap Up, June 20-24, 2011

Greek Austerity Package Continues To Worry; Falling Italian Bank Stocks Overshadowed By Positive U.S. Economic Data

On Friday, the stock market was down as it saw a seventh weekly drop in eight weeks amid continuing world uncertainty. Greece continues to struggle with handling its government debt as officials seek to enact austerity measures for the Mediterranean nation. Several Italian bank stocks fell sharply causing temporary shockwaves across the market, which were offset by the first quarter expansion of GDP (expansion of 1.9%, up from 1.8%). The U.S. stock market started out the week with what was believed to be a strong start, but this start with solid gains came to a halt as Federal Reserve Chairman Ben Bernanke addressed the public expressing his “cautious outlook” for the U.S. economy.

On Friday the Dow Jones Industrial Average fell 1% to 11934.58 and the S&P 500 fell 1.2% to 1268.45. The Dow was led lower by blue chip stocks, which have been down 5.1% for the month of June. The S&P was led lower by a drop in tech and energy stocks. The NASDAQ dropped 33.86 points to 2652.89. The drop in tech stocks, which had an overall impact on the markets Friday, were led by falling stock prices of companies such as Cisco, Oracle, and Micron Technology. Friday’s negative results overshadowed the less significant good news such as better than expected durable goods data and a gains in the utilities sector.

Greek Prime Minister George Papandreou stated that his government has secured a second bailout from the IMF and the European Union. Greece’s Parliament is currently preparing for this week’s vote of an austerity package. There has been a seesaw of economic prospects and expectations toward Greece’s debt situation as uncertainty continues to test world markets. A deal must be reached between the Greek government, European Union, European Central Bank, IMF, and institutional banks holding Greece’s government debt in order to prevent a government default. Several Italian bank stocks were suspended after such banks saw a sharp fall in their stock prices on Friday. According to the Wall Street Journal, a spokesperson for Borsa Italiana stated that the suspension was a result of high volatility but others speculate that one possible explanation for the suspension was because a swirling rumor those Italian banks would not be able to pass stress tests that are currently underway.

In the midst of a rise in U.S. jobless claims and declining U.S. new home sales, short-term and medium-term less-than-optimistic prospects remain for the U.S. economy. However bleak economic sentiment continues to be tested by positive economic data and such data’s market impact compared to the impact Greece’s debt situation has on overall market psychology. As the global market continues to figure out which of the two deserves more emphasis, economic uncertainty will likely remain for the near future.

– Shaun Hoyes

Article submitted by: Shaun Hoyes of the Capital Markets Lab (CML). To learn more about the Capital Markets Lab please visit https://business.fiu.edu/capital-markets-lab/.

About Capital Markets Lab

The Capital Markets Lab (CML) provides students, faculty, and the South Florida community with unparalleled educational and technological resources relating to finance. By utilizing the most current financial research platforms available, students are given an opportunity to supplement academic theory with the real world analytical tools used by leading financial institutions. Visit us at http://business.fiu.edu/capital-markets-lab/.

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