AMR’s bankruptcy filing and a decline in the Case-Shiller index of home prices were skunks at a garden party in early stock trading today, causing stocks to give back some of Monday’s big gains at the open. The decline never got very deep, as the Chapter 11 filing by the parent of American Airlines was rationalized away as “not about AMR’s illiquidity” but as a strategic move to achieve a more competitive cost structure. (Of course, that won’t help AMR stockholders, who saw their share values shrink by 84%.) In addition, while the Case-Shiller numbers on home prices in September were not up to expectations (down 3.6% over 12 months against a Street consensus of down 3%), can anyone really be surprised by a negative surprise in housing?
But a surprising bump in consumer confidence in the Conference Board’s November survey took the Dow up 100 points within 15 minutes of its reporting, although by day’s end two-thirds of that rise had evaporated. Given that the Dow and the S&P 500 managed to hold on to 0.2%-0.3% gains, one would have to judge the day as positive, particularly after Monday’s big gains. NASDAQ was the exception to Tuesday’s gains, chalking up a 0.5% loss for the day that puts its two-day increase to 3.0%, right smack between the Dow’s (+2.9%) and the S&P 500’s (+3.2%). European stocks also ended the day higher (roughly 0.7%), despite higher bond yields from Italy to Germany.
The markets’ sense that European finance ministers would come up with measures to beat back the bond vigilantes was “rewarded” with the late-night announcement of two such options to add muscle to the European Financial Stability Facility bailout fund. Option one is 20% to 30% guarantees on bonds sold by the EFSF; option two is the creation of “co-investment” funds of private and public moneys to purchase bonds in the primary and secondary markets. According to the Wall Street Journal, estimates discussed at the finance ministers’ meeting suggest that the rescue fund’s firepower could be increased to as much as 750 billion euros, somewhat short of market hopes going into the meeting. Ministers were said to be stepping up calls for the ECB and IMF to add their weight to rescue plan.
Also after today’s markets were closed, S&P announced that it had reduced its credit ratings on 15 global banks, including the six “too big to fail” U.S. banking giants. After-hours trading had JPM, BAC, and C shares down between 0.2% and 0.8%, on top of generally weak bank pricing in Tuesday’s regular trade. Since ratings cuts have been talked about for some time, and since the reductions all amounted to one-notch cuts, expectations for the impact of S&P’s changes on Wednesday’s general market setting appear to be muted. Tomorrow’s ADP employment report for November and Friday’s full-blown Labor Department report on the same subject, both of which are expected to show improvement over October figures, are likely to be key to whether stocks can maintain the momentum of the past two days.
Copyright © 2011 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.