“Spanish Bond Sell-Off Leads Markets Down for Fifth Straight Loss”

"Bond yields, my precious high Spanish bond yields"

Dow 12,716 (-1.65%)        S&P 1,359 (-1.71%)

Apparently the floor can in fact fall from beneath investors’ feet in 2012.  After the best first quarter for markets in over a decade ended just two Fridays ago, the major US stock market indices have fallen over 4% during the last five days to start the second quarter – and today’s drop was the worst of 2012 thanks to concerns over the European debt crisis.   Financial stocks, like Bank of America (BAC, -4.37%) and JP Morgan (JPM, -2.12%), as well as industrial big boys, like Caterpillar (CAT, -3.03%) and Exxon Mobil (XOM, -2.04%), whose businesses are closely tied to economic trends, all helped slam the Dow down 214 points – though many traders’ eyes were waiting for earnings season to kickoff after the close…

Spanish debt costs rise again, return spotlight onto European debt crisis

The 10-year Spanish debt yield, the investment return that investors demand to hold a 10-year Spanish bond, rose 20 basis points (.2%, 1 basis point = .01%) from 5.75% to 5.95% today in a sign that investors doubt the country’s financial health.  This came despite an announcement from the Prime Minister yesterday that the country would save 10 billion euros by cutting health and education budgets.  The MarketSnacks team has seen this before – a relative quiet in the European debt concerns followed by a realization that the PIIGS are still a mess and their problems can’t be solved through budget cuts alone.  Spain admitted in March that its 2012 budget deficit would be more than they had previously agreed to and stripping pencils from kids and cutting public health spending hardly convinced investors that the Spanish recession would end soon.  Italian and Spanish yields are the barometer for the European debt concerns, and their increases caused European stock markets to fall about 3%.

Alcoa announces surprisingly higher earnings after the close

The major aluminum manufacturer Alcoa (AA) unofficially kicked off the 2^nd quarter corporate earnings season after the market closed today by announcing earnings of 9 cents per share, or $94 million, since January 1, 2012.  The stock rose a hefty 5.4% in after-hours trading on the surprising news, citing its “aggressive” strategy to cut costs in the face of lower metal prices as the cause of increased profits.  The numbers comfortably exceeded analysts’ forecasts, who expected the blue chip company to lose 4 cents per share after their poor 4^th quarter performance and plant closures in January.  Investors focus on Alcoa not only because they are the first major company to release earnings (and do so with style), but because their announcement includes a broader economic outlook from an industrial perspective.  While many analysts are skeptical in the wake of recent market losses or simply consider the firm too cocky, Alcoa was notably bullish with its projections that global demand for aluminum (critical in many aspects of manufacturing) will grow 7% by year’s end, particularly in the aerospace and automobile markets.

Tomorrow:

• Federal Reserve releases its “Beige Book” report on the health of the US economy – this will be highly anticipated by market investors.
• Best Buy’s (BBY, -5.87%) CEO abruptly resigned today and the stock plummeted. Just weeks after announcing a new business plan for the company that would reverse their horrible earnings trend, CEO Brian Dunn bailed on the company.  How will the company’s board of directors put out this fire?

© 2012 MarketSnacks

Tags: Alcoa, European sovereign debt crisis, Spain