Monday, August 15, 2011

Merger Monday lifts markets

Dow soared 213 (closing at its high), advancers ahead of decliners 8-1 & NAZ gained 47.  Bank stocks led the way (in addition to the merger news) with the Financial Index 14 off its lows last week.

S&P 500 Financials Sector Index

Value177.31One-Year Chart for S&P 500 Financials Sector Index GICS Level 1 (S5FINL:IND)
Change   5.56     (3.2%)

The MLP Index had another good gain, bringing it back to the trading range it has been in since May & the REIT index popped 7+ to the 225s.  Junk bond funds were up more than 2% (very big in this world) & Treasuries were weak, money went into stocks.  Oil had a good day, some give credit to the rising stock market.  Gold gained for the first time in 3 sessions as the dollar’s decline revived demand for the metal.

Alerian MLP Index

Value358.40One-Year Chart for Alerian MLP Index (AMZ:IND)
Change     6.68     (1.9%)

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CLU11.NYM...Crude Oil Sep 11...87.62 ....Up 2.24  (2.6%)

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Fed Chairman Ben S. Bernanke

Photo:   Yahoo

According to a Federal Reserve (FED) survey, banks loosened credit standards on most types of loans in Q2, with commercial & industrial lenders citing “aggressive competition” as a reason for the easier terms,  “The July survey indicated that, on net, banks continued to ease lending standards and most terms on all major types of loans other than loans secured by real estate over the past three months,” the FED said. Ben Bernanke & policy-making colleagues pledged last week to hold the main interest rate at a record low near zero at least until mid-2013, saying economic growth is “considerably slower” than anticipated.  But even with record monetary easing, Europe's sovereign debt woes, weak economic growth & a downgrade of the US credit rating have triggered turmoil in financial markets, pushing down bank stocks. The S&P 500 Bank Index (above) has fallen 27% since its 2011 peak on Feb 15.

Bank of America to Exit International Credit-Card Businesses

Photo:   Bloomberg

Bank of America plans to sell its credit card business in Canada to TD Bank, part of its plan to shed assets & rebuild its capital base.  The deal covers an $8.6B portfolio.  BAC also wants to exit its UK & Ireland card businesses but has not decided whether to sell or wind down those operations.  The move effectively ends its intl consumer banking operations as it seeks ways to bulk up its capital cushion.  The bank is fighting lawsuits & credit problems related to its acquisition of Countrywide Financial 3 years ago when the US housing bubble burst.  BAC has lost more than $22B in its consumer mortgage division in the last year, agreed in Jun to pay $8½B to mortgage securities investors & is fighting numerous lawsuits.  BAC rose 57¢ & TD added $1.94 on a strong day for bank stocks.

BofA Sells $8.6 Billion Canada Card Unit to TD Bank as Capital Rules Loom

Bank of America Corporation (BAC)

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Toronto Dominion Bank (The) (TD)

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The European Central Bank (ECB) revealed that it bought €22B ($32B) last week, more than it has ever done before, to prop up the bond markets of Italy & Spain.  Tomorrow the leaders of Germany & France meet to discuss the debt crisis that has engulfed Europe for over 18 months.  Last week's turmoil in financial markets, which was partly blamed on Europe's sprawling gov debt crisis, threatened to sweep up heavyweights such as Italy & Spain.  Fears that the eurozone's 3rd & 4th largest economies may find it too expensive to service their debts triggered the ECB's intervention.  France was also caught in the crossfire, with investors worrying about the financial health of the country's banks & whether France would be the next country after the US to lose its AAA credit rating.  France & Germany, which account for almost half of the eurozone's economic output, are taking the lead in pushing for reforms aimed at pulling the bloc out of its debt crisis.  Euro sovereign debt issues have not gone away, just quieted down for the time being.

Today represents a sigh of relief that the craziness from last week is over (at least for the time being).  Merger Mon news & oversold conditions brought out buyers.  But the Dow is still far under its trend line & is more than 10% below its 2011 high.  The short term trend is favorable until shocks reappear.  The VIX, volatility index, fell a very big 4.53 to 31.83 but this is still its highest level since the very troubled days in early 2009.  Danger has not gone away.   

Dow Industrials (INDU)

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