Weekly Market Wrap Up, August 15-19, 2011

Bank of America Announces Job Cuts; European Banking Crisis Continues To Worry Investors

The Dow ended Friday with a 172-point fall after losing 419 points on Thursday; this was a losing week for the index. August has been the Dow’s worst performing month in more than two years. Along with the Dow, the S&P 500 and Nasdaq Composite indices shared similar percentage losses on Friday (1.57%, 1.5%, and 1.62% respectively). European stocks fell as well.

Bank of America (BAC) fell 1.8% as they announced that they would cut 3,500 jobs by the end of September. The stock has shown a steady decline since January of this year; the company has already cut 2,500 jobs for 2011. The 3,500 job-cut would account for a 1% reduction in the company’s workforce, which totals a rough 288,000 employees. BAC is currently in the $6 range. Overall, bank stocks, particularly in Europe, faced downward pressure on Friday. Economic data released on Thursday were jobless claims, consumer inflation, and manufacturing activity from the Philadelphia Federal Reserve.

Hewlett-Packard (HP) fell by 23% after the company stated that it would be exploring a spinoff of its PC business and would cease efforts to remain in the tablet and smartphone business. Friday’s plunge set the stock at a six-year low.

Gold futures rose to $1852.20/ounce – setting yet another record for the yellow metal. Gold has seen healthy price appreciation largely due to investor demand for a “safe-haven” asset. On Friday, crude-oil futures rose near $83 a barrel; the U.S. dollar fell against the Japanese yen and the euro.

Global markets continue to be troubled by investor concerns over political turmoil in Washington, Europe’s debt crisis, and a stagnant U.S. economy. Another major global financial concern continues to be Europe’s banking crisis, which according to Douglas Kreps, portfolio manager at Fort Pitt capital Group, “is worse than people thought.” Because of the negative economic data coming from Europe, many fear that the ramifications of Europe’s banking crisis could be similar to “another Bear Stearns or Lehman Brothers kind of event…..” Kreps asked a rhetorical question that many experts seem to be asking themselves: “Are we going into a double-dip recession?” Because of the uncertainty involved in predicting such economic events, there continues to be debate among market experts as to whether a second global recession is priced in at this juncture.

Article submitted by: Michael Alfaro, Andre Villareal, Chris Jones, Shaun Hoyes and Wellington Rodriguez of the Capital Markets Lab (CML). To learn more about the Capital Markets Lab (CML) 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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