Dow: 13,584, -27 (-0.19%) S&P 500: 1,456, -5 (-0.35%)
Happy Chicken Parm Monday. The stock market was (insensitively) open for trading this Columbus Day, even though US bond markets and the Federal Reserve were closed for the Italian-American holiday. After last week’s attention consuming labor report on Friday, the focus for investors this week will be on 3rd quarter earnings, which begin tomorrow (aluminum-producer Alcoa sets the tone to kick-off the earnings season), and Europe. Today, European finance ministers met over their continent’s debt crisis and tech stocks pulled markets down – the Dow lost 27 points.
Apple value falls, Facebook downgraded and Netflix gets a break
Apple (AAPL) stock is about as sexy as a stock gets these days (we liken the shares to “Kate Upton status” in popularity). While the iPhone 5 debuted to great sales numbers, they were below analysts’ exceptionally high expectations and has slipped ever since (its market capitalization fell below $600 billion today). Facebook (FB) wasn’t feeling love either – the stock lost over 2% after financial firm BTIG lowered its rating on the company from “neutral” to “sell” on worries the company’s advertising on mobile phones will hurt users’ experiences. On the flip side, Netflix (NFLX) was the biggest gainer in the S&P 500 stock index, jumping over 10% after Morgan Stanley equity research analysts decided that Amazon.com’s (AMZN) new video streaming business isn’t a threat (yet) to Netflix (sounds more like a stay of execution).
European leaders initiate the permanent bailout mechanism, questions on Spanish bailout linger
Investors knew major questions in Europe remain unanswered, and they can’t be ignored any longer. Today the 17 finance ministers of the euro-currency union met in Luxembourg to finally implement the permanent bailout fund. Until now a temporary fund has bought the bonds of Greece, Ireland, and Portugal because private investors refused to lend to the risky countries. Now the ESM – European Stability Mechanism will be the permanent source of liquidity for countries in need of a bailout.
For the ESM to really be effective though it needs to bail out banks directly, instead of having Spain, for example, as the middle man. When Spain’s banks receive capital from the ESM, those funds are included in the tally of Spain’s national debt and make the country even riskier in the eyes of private investors (likely resulting in higher bond yields, i.e. higher borrowing costs). So long as there is no banking regulatory union, the Spanish government is responsible for the Spanish bank bailout. A banking union was agreed to in principle months ago but has not been put into practice. Negotiations will be prolonged and are likely to cause much more euro bickering. Investors braced themselves today for that long political process and also for Greece to come back on the radar as another round of bailout funding is due soon, and the Greeks must convince Europe they are abiding by their austerity promises (see tomorrow section).
- Is Liam Neeson available? Greek police need to ensure that German Chancellor Angela Merkel is not taken by the hostile crowds already forming in Athens for Merkel’s visit tomorrow. Merkel is visiting Athens for the first time since the crisis began in ’09. Little substance is expected from the meeting between the Greek and German heads of state (Merkel will show support for Greece’s future in the euro and sympathy for those suffering from austerity measures, is our bet). Security for the visit is at its highest; many Greeks blame Merkel for their current hardship.
- Alcoa kicks of third quarter earnings season.
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