US downgrade, European worries may slam stocks

The Dow is looking at opening down more than 230 points. Gold tops $1,700 an ounce. Asian stocks slump. The European Central Bank will support Italian and Spanish bonds.

By Charley Blaine Aug 7, 2011 9:15PM

Charley BlaineUpdated: 7:30 a.m. ETMonday

Here's what the futures markets are saying about Standard & Poor's downgrade of U.S. debt and Europe's debt problems: Better take cover.


The Dow Jones industrials ($INDU) are looking at opening down some 230 points or 2.7%. The Standard & Poor's 500 Index ($INX)? Down some 2.8%. The Nasdaq-100 Index ($NDX.X) may drop some 2.6%. 


Gold (-GC) for December delivery was trading $57 higher, or 3.5%, to $1,709 an ounce. It was the first time gold had traded above $1,700 an ounce. 

"We are in uncharted territory and, therefore, should all brace for volatility over a number of days if not weeks," Mohamed El-Erian, CEO and co-chief investment officer of the bond mutual fund company Pimco, told The Associated Press.


Meanwhile, the G-7 nations -- the most developed industrial countries -- pledged to in a statement to "take all necessary measures to support financial stability and growth."

 

Article continues below.

If you're a consumer, you could take a little cheer from crude oil (-CL). It was down more than $2.67, or 3.1%, to $84.21 a barrel at 9:20 p.m. ET. That means retail pump prices will be heading lower.

The declines are a reflection of the worry about the S&P downgrade -- and warnings of more ratings cuts. And they reflect worry that Europe's debt problems are spinning out of control. Speculators are able to push bonds of Spain, Italy, Portugal, Greece and Ireland lower at well.


Plus -- and this is more important -- they reflect growing fears that the domestic economy may be sliding back into recession. Reports over the last 10 days have painted a broad picture of a increasing weakness.

Friday's jobs report did little to help matters. The national unemployment fell to 9.1% in July from 9.2% in June. Nonfarm payrolls grew by 117,000, but that's not enough to bring the unemployment rate meaningfully down.

Markets tumbled badly last week, with the Dow off 5.8%, the S&P 500 off 7.2% and the Nasdaq Composite Index down 8.1%.

The weak markets are also a reaction to the European Central Bank's decision late Sunday to buy Spanish and Italian bonds. In fact, this may be a far bigger story than Standard & Poor's decision. The move is part of an increasingly forceful campaign by policymakers around the world to prevent deteriorating public finances and slower growth from provoking another financial crisis

European stocks may get pummeled as well, with German, British and French stocks looking at opening down 1.7% or more.

Japan's Nikkei 225 Index ($JP:N225) was off more than 2% in late trading. Australian shares were off 2.6%. China's Shanghai Composite Index was off 3.5%.

A game-changing move in Europe

Some analysts said that Italy, which is fast losing investor confidence, posed a threat to the financial system too great for any one economic superpower to cope with alone, The New York Times said late Sunday. That meant a coordinated effort is needed.

"They just can’t allow the Italian economy to go down the tubes," Uri Dadush, a senior associate at the Carnegie Endowment for International Peace, told The Times. That would produce a market reaction as bad as the 2008 collapse of investment house Lehman Brothers. The Lehman Brothers failure turned a nasty market correction into one of the worst market routs ever.

The ECB intervention to prop up Italy and Spain in the face of repeated market assaults on debt issued by both governments is a watershed in Europe's handling of the financial crisis, The Wall Street Journal noted Sunday. The bank had been insisting that the main responsibility for action lies with national governments.

A decision to buy Italian and Spanish bonds basically concedes that the euro's member states are unable or unwilling to respond effectively. That means the ECB is the lead firefighter -- and the eurozone's lender of last resort. That could reshape the future of Europe's monetary union.


Is a rally getting ready to erupt?

The market turmoil may actually help produce a big rally this week.


"If history is any indication, investors are going to make far too much of the U.S. downgrade. And, with any luck, that will result in a huge decline in the early part of the session Monday," Canadian hedge-fund manager Terry Bedford wrote clients late Sunday. "Buy that decline.  Don't think about it, buy it."


Market technician Tom McClellan of the McClellan Market Report also sees a short rebound this week because copper prices are holding firm.


A weak market after a crummy week

Only two of the 30 Dow stocks finished with gains last week. There were no winners for the week among Nasdaq-100 stocks. Nor were there any winners among stocks in the Dow Jones Transportation Average ($DJT), the Philadelphia Semiconductor Index ($SOX) or the Philadelphia Banking Index ($BKX).

Only one stock among the 40 in the Standard Poor's Retail Index ($RLX) had a gain: RadioShack (RSH), up 0.5%.

Last week's 7.2% decline in the S&P 500 cost investors about $850 billion. The index has fallen 12% since peaking on April 29. The cost to shareholders: about $1.48 trillion.

Worldwide, more than $5.4 trillion in global equity value has been erased since July 26, Bloomberg News said.

46Comments
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I fear a 'Great Depression II', and having to start all over again. But when the time comes, we should replace this government with one more like our Forefathers had intended; '...for the people , by the people, and of the people.' And this time around not lose control of our government.
Aug 8, 2011 6:53AM
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We are all to blame.  We have been electing the people in Washington during the past

3 decades from which this problem stems.   Of course they didn't do their job that we

sent them there to do, but we just kept sending them. 

 

Many of us are to blame for overextending our borrowing, buying houses we couldn't afford,

and expecting lower and lower tax rates that has resulted in 50% of the people in this country

paying no income tax.  They do pay the SS and MC taxes.  These breaks extended to the rich and the large corporations as well.  It basically started with Reagen and is moving forward with OBama. 

 

This not a spending problem nor a revenue problem.  It is both.  You simply can't solve

these problems by cutting spending or raising revenue.  It will take a combination of both.

At this point we will not be able to simply grow our way out of it.  There are few jobs left

for people to have to spur that growth.  In this case Elvis has really left the building.  He

has gone overseas with the jobs.

 

 

 

In Washington the blame game is reaching new heights.  The R's blame the D's and Obama.

The D's blame the R's and Bush II for the problems.  It has to end.  These people have

to accept resonsibiltiy for what has happened and get to work on the solutions.  Appointing

another political select committee is not the answer.  They won't listen to them anyway.

The didn't the last one.

 

How can the R's blame the D's when the R's in the 20 years of the Reagen, Bush I and

Bush II administrations accumulated 10 trillion of the current 14 trillion debt.  Of course

they blame in on D congresses, but isn't that what they made the veto pen for.  Doesn't

the President make the budget and have the right to veto any spending measure that

he deams unacceptable. 

 

Let's all accept the blame together and all work together to find the solutions.

 

The problems we have today did not happen overnight and they will not be solved overnight.

It will take many forthnights to work things out.  Lets not take what we built up for 225 years

and destroy it in 30.  We can do better than this.

 

 

Aug 7, 2011 11:02PM
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Sunday 8/7 10:59pm

 

Dow Futures -224

SP - 24.80
NASD -42.75

 

Smile It's going to be a really interesting Monday for investors and traders, remember buyn low. sell high and dividends are your friend.  EU and US will print their way out of this again?

Aug 8, 2011 2:00AM
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 i applaud all of you with optimistic outlooks for our economy hope your right don't think so tho.americas industrial base has been relocated thanks to free trade/job exporting. The damage is done. Our only hope is tariffs that make manufacturing profitable here again. But corporations are making money hand over fist having replaced us. They bribe/contribute to enough of our congressmen free trade will never be defeated. Ever since our country enacted free trade/job export our country has been in decline

tariffs mean jobs for americans

free trade means jobs for the chinese

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The US credit downgrade was earned by our corrupt Political Class and their supporters policies, but , no matter what the paid-for media or government press releases say, the  blame for the coming Depression does not fall on any Credit Rating Agency. They will be touted as the scapegoat.  
Aug 8, 2011 7:09AM
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My guess is that they will beg Ben to fire up his

printing press, and start turning out the funny money at

a rapid ...7/24 pace....

Which only helps banks, while driving the value of the dollar down for All Americans... 

Should be a great day to watch the market, and listen to the excuses, and

the blame game played to the fullest..

Aug 8, 2011 6:40AM
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Last night, msm was "The market will not be affected; it has already corrected for the downgrade over the past several weeks."  This morning, "Monday will be nasty".  My confidence in msm is all but gone.  Alternative media has much more investigative journalism and less hype and flip flopping.  
Aug 8, 2011 2:02AM
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Why anyone would put  any credence in what S&P or any "rating" agency would say is absolutely amazing. These are the same "experts" that didn't see the subprime mess or credit default swaps, or CDO's,  ect. ect. These crooks sell their ratings to the highest bidder and then in exchange for even bigger fee's they "overlook" the real balance sheet . They then get get hired by the very firms they rated (with huge raises)  can anyone say conflict of interest? The US does have a debt problem as does Europe.  However, I think what's going on is that this is laying the ground work for the government to steal our SS and medicare funds and shift them to the Dept. of Defense and the Banksters. Hey we don't have the money for the elderly or kids but we have plenty for QE-3, foreign aid, and to run 5 wars at the same time. 

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You poorer people, of which I am one, should get your money out of stocks, IRA's, 401k's, etc. and buy silver or gold before we get wiped out again. I can only afford old US silver coins, but I'm buying what I can.

 

Good luck to everyone (except the top 10%)!

Aug 8, 2011 4:12AM
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Bigger bailouts.  Higher deficits.  And plenty of war.  Obama's just a dark-skinned "W".  A historic opportunity to elect a black "W".  So much for change -- other than skin color.  "W" Part 2, just keeps stumblin' right along...
Aug 8, 2011 4:02AM
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The failures of S&P in the past are all the more reason for it not to screw up this time around.  The downgrade was long overdue, and there will likely be more on the way, as well as Moody's and Fitch becoming involved.  The national debt will never be paid back.  Buying Treasuries is most unwise.
Aug 8, 2011 3:01AM
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those who laugh at this problem aren't in the Market and Don't care about too much.  But if they are unemployed and actively seeking employment with a new degree in something they should be very affraid 
Aug 8, 2011 2:30AM
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Wall Street’s Con Game
CRASH & BURN - I hope the freaking building falls in on top of it!!!

http://www.yesmagazine.org/blogs/david-korten/7-ways-to-stop-wall-streets-con-game


Aug 7, 2011 11:39PM
Aug 8, 2011 7:28AM
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Thank you Boehner and your band of Tea Party renegades. Congratulations.....you won.

 

If only the rest of Congress was willing to listen to them, we would have had a much better chance to NOT end up here.

 

They were the ONLY group talking straight with the American people.  To blame them is NONSENSE.  Just more ADDICT TALK. 

Aug 8, 2011 1:37AM
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tereb....what world do you live in?,right now metals are the place to be,and will continue to be for many years to come......gold will hit $2000 + and silver will be over $60 by the end of the year,your boy BB will help this out on tuesday when he opens his hole about QE3...... keep your fiat currency and look at the world ....TURMOIL,Ray Charles can see what's coming.....good luck a wise man once said " a fool and his money soon part" that will be you if your not careful and change your outlook!
Aug 8, 2011 1:53AM
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All of this has been done to give Bernanke an excuse for QE3 on Tuesday. Once you start printing money out of thin air, every time you stop, the markets tank. So you have to continue printing until you create hyperinflation and the wheels fall off. Hang on for the ride folks. It's going to be a doosy.
Aug 8, 2011 7:55AM
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Gary  Myers;

 

Great Posts, Gary. Hopefully, the American public has learned the hard way to vote for individuals not the party propaganda. I also don't have too much respect for the Tea Party but their presence just might be the catalyst to wake up both major parties. The S&P downgrade should have never happened except for congressional apathy and incompetence. We need term limits for congress to avoid complacency by career politicians indebted to corporate America and guided by self interests. rather than public interests. It's the only leverage the public has since members can't be removed mid-term.

Aug 8, 2011 12:02AM
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A message to working people: Get out of the market------take your losses and get out------you are being wiped out------do not listen to your broker-----do not listen to Wall Street------you are being fed a bunch of propaganda-------there are no fundamentals that would suggest a working stiff stay in the market------gold and silver----buy it!
Aug 8, 2011 12:43AM
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Too late for most of you now anyway.  I moved into cash about 9 months ago.  I lost about 8% off the peak, but now I'm ahead on the year.  You can't steer and brake after you've entered a curve.

If you're in now, you may as well hold on.  We'll hit bottom in the next 4 to 6 months.  In the meantime, I hope you have some stocks that pay dividends.

BTW:  Blaming 'Tea Party' people for this mess is as silly as blaming steerage class passengers on the Titanic for driving the ship into an iceberg.

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