Stocks rise, celebrating European nations’ deal
In a week that was supposed to end with a deal to resolve Europe’s financial troubles, investors and economists still have their gaze firmly fixed on how the continent would aid some of its debt-ridden countries.
An agreement reached by most members of the European Union early Friday puts some basic measures in place to help deal with the more than yearlong crisis.
The deal was greeted with a quick burst of enthusiasm in the markets and allowed some attention to shift to the latest good data on the U.S. economy, an attitude likely to spill into next week.
French and German leaders had said the agreement was the last chance to dispense with the European crisis, but few economists and market watchers seemed to believe the saga was over.
“It’s another step on a long road; it’s certainly not a conclusive decision,” said Hank Herrmann, chief executive of Waddell & Reed. “There are too many open switches.”
The agreement left open the possibility that a European country could default on its bonds or leave the euro currency. But that possibility has at least been put off for a while longer.
The Dow Jones industrial average ended Friday up 186.56, or 1.6%, at 12,184.26. The broader Standard & Poor’s 500 index rose 20.84 points, or 1.7%, to 1,255.19.
For the week, both indexes were up slightly. The technology-heavy Nasdaq index was off less than a point.
Friday brought the latest signals that the U.S. has not been dragged down by the European situation.
The University of Michigan’s monthly survey of American consumers showed that confidence rose more than expected from November to December. In other good news, the most recent trade deficit data, from October, showed that American exports grew while imports fell.
Some traders hope the Federal Reserve Open Market Committee will provide more monetary stimulus when it meets Tuesday. But such aid is unlikely. Analysts expect the Fed to stand pat on any stimulus, instead focusing on improving how it communicates its actions to the markets and the public.
Even with some sunnier data, Wall Street remains worried that further signs of a U.S. recovery could be overshadowed again by problems in Europe.
The EU’s agreement Friday provides an additional 200 billion euros to the International Monetary Fund to help European countries in trouble. And a separate European bailout fund will start operating next summer, rather than in 2013.
The 17 countries that use the euro also have agreed to stricter fiscal discipline, with sanctions if they run deficits. But Britain, which continues to use the pound sterling, did not support the move, and other countries still could derail the deal.
More important, market experts said Friday’s plan does little to help the immediate pain being felt by several European countries, including Spain and Italy.
“Nothing has really changed,” said Bill King, the chief strategist at M. Ramsey King Securities. “They’ve kicked the can down the road again.”
Spain and Italy need investors to continue buying their bonds so they can pay off old bonds and avoid defaulting. The rescue funds could help with this, but for now, most of the responsibility for handling the situation falls to the European Central Bank.
The president of the bank, Mario Draghi, has been reluctant to prop countries up by buying their bonds. This week, however, Draghi announced a number of new measures to help European banks that own European sovereign bonds — and he greeted Friday’s agreement with optimism.
But for the investors who hoped they would be able to stop worrying about Draghi and the other European leaders, the spotlight is not shifting yet.
“We go right back to what we were doing,” King said.
