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Proposed Eurozone Bailout Impacts Wall Street

13 October 2011 - News - Editor

Stocks rose sharply on Wednesday before dropping slightly, but still ending the day at an encouraging high, with the rally believed to have been fuelled by optimism regarding the latest proposal to recapitalize banks in Europe. Investor sentiment appears to have shifted from its doom-and-gloom outlook last week, to one of hope that a TARP-styled rescue plan will be put in place for European banks. President of the European Commission, Jose Manuel Barroso was reported as stating Wednesday that the resolution of this ongoing crisis needs immediate action from policymakers. He also pointed out that banks that fail to meet capital requirements should not be permitted to pay out dividends and bonuses.

Intraday movement of US indexes on Wednesday saw the Dow briefly reach a positive reading for the year, while all three – the Dow, S&P 500 and Nasdaq Composite – were up by around 2 percent before dropping back before close of day. End of the day readings revealed that the Dow had climbed 102 points, the S&P 500 gained 12 points, and the Nasdaq added 22 points, being 0.9 percent, 1 percent and 0.8 percent respectively. Following the heart-wrenching drop in stocks on 3 October, to the lowest level in over a year, all three indexes have climbed between 8 and 11 percent. Wednesday was the 5th out of the last seven days for an advance in the Dow, while for the S&P 500 and Nasdaq, it was the 6th day of seven.

The effect of hopes for a resolution of Europe’s debt crisis was most evident on financial stocks, with JP Morgan Chase, Citigroup, Bank of America and Wells Fargo all up between 2 and 5 percent. As revealed in a survey by CNN Money, more than 80 percent of the experts giving their opinions noted that overseas debt problems are creating challenging circumstances for US stocks. With the proposed bailout requiring approval from all seventeen Eurozone nations, Slovakia proved to be the fly in the ointment as they voted against putting the plan into action. With the Slovakian government in a state of flux, it is anticipated that a positive vote may still come through before the end of this week, with Wall Street investors no doubt hopeful of a positive ripple effect in US markets.

 


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