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Published On: Sat, Nov 10th, 2012

Obama Ready to Tax Rich: US Stocks Drop

After a rough week following the United States elections, US-based stock markets managed to advance on Friday. The gains were not enough to place the week in positive territory. Overall, the Nasdaq fell 2.6 percent while the Dow Jones Industrial Average retreated 2.1 percent for the week. The Standard & Poor’s 500 index dropped by 2.4 percent. Many of the gains made earlier in the day on Friday were lost after President Obama announced his decision to pursue higher taxes on the rich. After the announcement, the Dow Jones Industrial Average lost 30 points it had gained at the beginning of the trading session.

An announcement during the day helped bank shares to be generally positive. Bank regulators issued a statement that said that many of the capital requirements in Basel III would be delayed. Previously, banking institutions in the United States had complained that the January 1 deadline was too soon. The new statement delays the plans implementation for an unstated amount of time.  On the Standard & Poor’s 500 index, financials gained on the news. Shares in Bank of America jumped up 2 percent and ended the day at $9.43. The KBW Bank Index rose by 0.8 percent.

Technology shares in the United States were largely positive with Microsoft advancing 0.07 percent to end at $28.83. Cisco dropped by 0.06 to $16.82.

After releasing lower-than-expected earnings reports, shares in Disney fell 5.96 percent to $47.06. McDonald’s posted weaker sales for the third quarter and saw share prices fall 0.46 percent to $84.74. J.C. Penney reported lower earnings and sales during the third quarter. The company was expected to earn $3.28 billion, but instead only made $2.93 billion. Over the course of the day, shares in J.C. Penney fell 4.84 percent to $20.64. J.C. Penney stated that it lost an estimated $0.93 per share in the third-quarter despite expectations that it would only lose $0.07. Overall, shares in J.C. Penney fell by eight percent during the last week.

During the day, traders largely ignored United States data that showed a 0.5 percent rise in import prices. The increase was mostly due to a 1.3 rise in the price of imported fuel.

Lumber and oil performed well in the day as short-term bond prices advanced. Ten-year treasury bonds increased to yields of 1.64 percent. The stronger dollar and growth in equities helped to push the euro lower to a level of 1.27.

Nasdaq Technology Shares Rise

On the Nasdaq, shares in Apple advanced by almost two percent to finish the day at $547.06. Priceline.com is expected to acquire Kayak Software. After this news came out, Kayak Software saw a $27.8 percent boost in share prices to end at $39.67. Priceline.com fell by 0.32 percent to $625.87. Shares in Groupon dropped by 29.59 percent to $2.76 because of lowered earnings and a poor business model. In the last year, shares in Groupon have dropped by 84 percent.

Higher Consumer Sentiment

On Friday, the University of Michigan released its consumer confidence report for the United States. The data showed that US consumer confidence was at its highest level for over five years.

European Stocks

As the trading session drew to a close on Friday, European shares began to recover from a depressed start. New data out of the United States fueled hopes of growth in the world’s biggest economy. In September, United States wholesale inventories and sales increased while consumer sentiment is at a five year high. Stoxx 50 index held steady to close at 2,479.82. It managed to hit a low from late October for a brief period of time. In the previous two sessions, the Euro Stoxx 50 index dropped 2.7 percent amid concern over the fiscal future of the United States.  The German DAX finished the day lower at 7,163.50 after dropping 0.6 percent.

France’s Credit Agricole reported that it had a total of $4.6 billion in write-downs. The news dismayed investors who rapidly sold off shares of Credit Agricole. By the end of the session, the stock had fallen by 5.9 percent. Banks in the Eurozone were hit hard by the continued uncertainty in Greece. On average, they fell by 1.3 percent on Friday. Despite being considered a safer asset during hard times, the healthcare sector only managed to grow by 0.9 percent during the day.

One winner on the European markets was Novo Nordisk. Based out of Denmark, the company markets a long-acting insulin degludec. This drug was recently approved by the United States Food and Drug Administration. It saw a seven percent jump in volume. Out of all shares on the FTSEurofirst 300 index, Novo Nordisk rose by the largest percentage. Overall, the FTSEurofirst 300 index dropped 0.1 percent to finish out the day at 1,097.18. At its peak during the trading session, the index was at 1,086.11 points.

On Monday, finance ministers from the Eurozone are expected to meet and discuss the fiscal issues in Greece. This meeting is widely expected to disappoint and offer few solutions. Ministers cannot grant Greece new loans since there is no way to ensure such debts are sustainable. Athens will receive two years to resolve their budget issues and cut debts. German Finance Minister Wolfgang Schaeuble stated on Thursday that it is still too early to decide on whether to grant aid to Greece or not.

Emerging Markets

Last month was the largest slump for emerging markets since May. Fueling this decrease, India’s Oil & Natural Gas Corporation reported its largest drop in profits for the last four years. By the end of the trading day, the MSCI Emerging Markets Index fell by 0.4 percent to 990.98. Over the week, the index has lost 1.4 percent.

The South Korean Kospi index retreated by 0.5 percent for the day. In South Korea, the central bank stated that the economy would only enjoy moderate improvement. The central bank decided to hold borrowing costs. After this announcement, bonds in the nation lost gains from earlier in the day. The Hang Seng China Enterprises Index lost 0.7 percent. Comprised of mainland companies, this index had its lowest close on Friday since October 26. Yields on two-year bonds in Turkey also retreated for the fifth consecutive day. They are now at a record low.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.

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