Italian Stocks - Factors to watch

Italian Premier Silvio Berlusconi confirmed his nation would be moving toward a balanced-budget amendment on Friday, after rampant speculation that the European Central Bank would intervene in bond markets and purchase Italian and Spanish debt in exchange for structural reforms.


Speaking at a press conference, Berlusconi, flanked by his embattled Finance Minister Giulio Termonti, announced he had reached an agreement with European leaders to accelerate reforms. These measures, to be announced in Congress by Minister Tremonti, include speeding austerity plans by a year in order to balance the budget by 2013.


Also, according to Trade the News, Berlusconi announced Italy would be moving toward a balance budget amendment, much like the one many Republican policymakers argued for in the U.S. Berlusconi, who presumably has been in talks with France’s Nicolas Sarkozy and Germany’s Angela Merkel, also agreed to hold an early G7 Finance Minister’s conference, with heads of state possibly in attendance.


Speaking after his boss, Tremonti outlined part of the plan. Labor reform is critical, he explained, and austerity measures will be moved forward one year, so that the focus of the plan will be during 2012 and 2013 rather than from 2013 to 2014. Tremonti, who confirmed he had been in talks with Treasury Secretary Tim Geithner in recent days, noted they were just accelerating austerity, as opposed to bringing new plans to the table.


If it’s August it must be time for another chapter of the European crisis. But markets around the world, including in the U.S. these last two weeks, are forecasting something more sinister. The eight-day decline in the Dow Jones Industrial Average DJIA +0.54% — snapped Wednesday with a paltry almost 30-point gain — shows that investors are discounting a new recession next year.


The latest batch of economic reports are almost too weak to digest, though that didn’t stop MarketWatch’s Washington bureau chief from compiling them into a terrifying summer reading assignment on Wednesday. See chronicle of gloom.


If the payrolls and unemployment numbers on Friday are anywhere near as bad as they are expected to be, then stocks could get even worse next week. Economists predict July’s nonfarm payrolls grew by a meager 75,000, and that the unemployment rate stood pat at 9.2%.


Anything weaker than 75,000, or a worst-case scenario of a negative number, could spur a stampede out of equities.


Some pundits claim the market is poised to bounce in coming days as the length of the latest decline has made it oversold. That’s probably right. A downgrade of the U.S. debt rating by Standard & Poor’s, removing that uncertainty, could be the catalyst, as I’ve said before. And it’s still entirely possible that stocks will come out of this summer with big gains heading into the end of the year.


But the decline in stocks these last several days is a dramatic example of what happens when a market turns.


The last eight-day decline in stocks, which came in October 2008, just a few weeks after Lehman Brothers collapsed, was equally brutal. Stocks did bounce back, but then slid again — for another five months before hitting the bottom in early March 2009.


The economy is not as shell-shocked right now as it was then. It is on a pronounced downward slide, though, and no amount of Federal Reserve stimulus is going to counteract that, if indeed the Fed proceeds on a new spending program.

Advice After the Market Plunge

NEW YORK -U.S. blue-chip stocks closed higher Friday in a day of whipsawed trading, as investors struggled to digest a better-than-expected jobs report with news of progress in the euro-zone debt crisis.

The Dow Jones Industrial Average finished up 60.93 points, or 0.54%, at 11444.61. The blue-chip index gained as much as 172 points in early trading after a better-than-expected jobs report, but lost those gains within the first half hour of trading and dropped as much as 245 points at its morning low.

The measure bounced off the lows in the early afternoon as investors cheered news that Italy will speed up its fiscal consolidation timetable. Italian Prime Minister Silvio Berlusconi pledged to push labor reforms and said Italy would balance its country's budget by 2013, a year earlier than planned.

The comments came at a hastily called news conference in an effort to quell fears about the euro zone's third-largest economy.

"The somewhat stabilizing news out of Europe is allowing us to bounce from very oversold levels," said Tom Donino, co-head of trading at First New York Securities.

The Standard & Poor's 500-stock index edged lower by 0.69 point, or 0.06%, to 1199.38. The technology-oriented Nasdaq Composite Index tumbled 23.98 points, or 0.94%, to 2532.41.

Investors came into Friday's trading with bated breath after a roller-coaster week during which many began to lose faith in the ability and willingness of governments to contain a snowballing crisis.

The Dow tumbled 513 points Thursday, its biggest point drop since Dec. 1, 2008. It is in the red for the year and has fallen more than 10% below the 2011 closing high in April, putting the measure squarely in correction territory.

The action comes as the U.S. economy added 117,000 jobs last month, more than economists were expecting. The unemployment rate edged lower to 9.1%. The better-than-anticipated jobs report, however, wasn't enough to convince investors that the troubles affecting the economy are over. Recent reports have shown a drop in consumer spending, a slowing manufacturing sector and sluggish economic growth.

"One nice number isn't enough to change sentiment at the moment," said Ted Weisberg, president of Seaport Securities. "Folks are scared and want to take risk off the table.

Opening bell on Wall Street was likely just a sour note for many of us Friday morning. That's after the pain Thursday when the Dow Jones Industrial Average lost more than 512 points. All the gains made this year have been lost.

So what do you do now? "You don't make big changes on a day when the market has fallen," says Iris Dayoub, president of Alpha Financial Management.

You may be freaked out, but she says don't make drastic moves. "I don't think anyone should be doing anything today frankly, if they have an investment strategy they've been comfortable with, they should stay the course," she tells me.

Dayoub was encouraged by Friday's job report which showed more positive news than frankly some had expected, including the fact in May and June numbers were revised upward. She thinks the recent debt drama in Washington, D.C. may have spurred on Thursday's crisis. "Yes, I think we did set the stage for it so people were already anxious in a normal time wouldn't have paid that much attention to it," she says.

Dayoub says the issue with many investors is that they try to time the market and make mistakes over and over.

For those who decide the market may be too risky, she says make changes gradually. "And if you have a 401K at work, keep making contributions, especially if the company is putting money in," she says. "Because right now you're buying at a really low price and that's what we like to do, buy low and sell high.