The hoopla about Facebook’s initial public offering fizzled out on Friday as investors remained worried abut the European economic situation, leading to another negative finish for the benchmarks. Ratings agency Fitch had worrying news for Greece and 16 Spanish banks were downgraded by Moody’s in a separate development. Amidst lingering European concerns, which threaten even global markets, US benchmarks could not escape another round of weekly losses.
The Dow Jones Industrial Average (DJI) slumped 0.6% and was down to 12,369.38. The Standard & Poor 500 (S&P 500) plunged 0.7% and finished Friday’s trading session at 1,295.22. The tech-laden Nasdaq Composite Index crashed 1.2% and ended at 2,778.79. The fear-gauge CBOE Volatility Index (VIX) continued its uptrend even on Friday and jumped 2.5% to settle at 25.10. Consolidated volumes on the New York Stock Exchange, Nasdaq and American Stock Exchange were roughly 8.8 billion shares, sharply higher than the daily average of 6.83 billion. Declining stocks yet again outpaced the advancers on the NYSE; as for 73% of stocks that declined, only 24% stocks could manage to climb higher.
One of the most-anticipated IPOs this year- Facebook, Inc. (NASDAQ:FB) was also the most actively traded stock on the Nasdaq on Friday. Facebook’s volumes amounted to 580,587,742 shares and witnessed a volatile run. The stock, which was priced at $38.00, soared 10% in the morning, hitting a high of $45.00 a share, but the gains fizzled out and it ended a mere 0.6% higher from its issue price at $38.23.
Initially, investors had no clue about their orders for Facebook as Nasdaq suffered a technical glitch. Trading was delayed by half an hour on the Nasdaq as it suffered some issues with sending trading messages. While Nasdaq could fix the problem only at 1:50 p.m., shares of Nasdaq market’s parent company Nasdaq OMX Group Inc. (NASDAQ:NDAQ) took a hit and closed at 4.4% lower on Friday.
While excitement over Facebook waned, benchmarks were once again affected by European financial woes. With Greece looking likely to exit the euro, ratings agency Fitch downgraded Greece’s long-term rating by a notch to ‘CCC’ from ‘B-’. Things in Greece have not been smooth owing to its political turmoil, which majorly impacted the ratings agency’s decision. Fitch stated: "The downgrade of Greece's sovereign ratings reflects the heightened risk that Greece may not be able to sustain its membership of Economic and Monetary Union".
Greece went to the polls earlier this month on the 6th and with no clear majority for any political party, the country has failed to form a government. Greece needs to secure its next tranche of bailout, failing which it will default and will also exit the euro. Amidst such a scenario, the President has called for another election next month. However, if an anti-austerity party comes to power, international lenders might choose to withhold the bailout package. As of now, with every passing day the possibility of Greece exiting the euro is getting higher. "A Greek exit would likely result in widespread default on private sector as well as sovereign euro-denominated obligations, despite a moderate sovereign debt service burden following the restructuring of Greek government bonds in March," Fitch added.
In another development, Moody's Investor Service downgraded 16 Spanish banks, reflecting the financial troubles of the nation as well as the entire region. Moody”s said: “Amidst the ongoing euro area debt crisis, the Spanish government's rising budget deficit and the renewed recession, sovereign creditworthiness has declined…This decline is a driver of today's bank rating actions".
These concerns dampened sentiment in U.S. markets and financials were big losers once again. The Financial Select Sector SPDR (XLF) dropped 1.1% and financial stocks including Citigroup Inc. (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM), Goldman Sachs Group, Inc. (NYSE:GS), Barclays PLC (ADR) (NYSE:BCS), Regions Financial Corporation (NYSE:RF) and Wells Fargo & Company (NYSE:WFC) dropped 1.5%, 1.3%, 1.6%, 1.9%, 1.0% and 1.6%, respectively.
With Friday’s fall, markets ended another week on the losing note. The Dow, S&P 500 and Nasdaq lost 3.5%, 4.3% and 5.3%, respectively. The fear-gauge index too stood testimony to increasing apprehensions and concerns in the markets. The VIX jumped by nearly 10% twice last week and was also trading at its highest level since late December last year. As for the 5-day change, last week, VIX soared 26.2%.
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