JPMorgan, S&P Downgrades Hit Markets: Dave's Daily



JPMorgan (JPM) reported worse-than-expected results, knocking stocks lower. Thereafter rumors and leaks started that S&P was going to lower credit ratings for eurozone countries including France. This is something that's been bandied about for quite awhile. S&P probably planned to do this Friday "after" the close of trading giving investors a three day weekend to digest it. But, leaks from S&P and calls to associated governments about to be downgraded got out and stocks were sold early.

The rating agencies remain a fee conflicted lot just as they were in 1998 on Long Term Capital, 2002 Enron and pals and of course the CDO nonsense. They said they would change after each occasion but never have and won't given their fees. Ask Warren Buffett, owner of 12% of Moody's, if he wants them to change their business model.

The French response to this was rather mild for now. I was expecting a raid on S&P headquarters or baguettes being thrown by the French army but that didn't happen. The only comment from the finance ministry was: "well, we're as good as the U.S." Gawd!!!

What has been interesting, and could have been "the tell" for this market is the light ultra-light volume we've been seeing on the recent stock melt-up. Further, we were getting overbought at least short-term. Banks and financials overall have rallied sharply since the year began. JPM threw cold water on the bull's parade. But let me tell ya...bulls are a resilient bunch.

Other news of perhaps only pedestrian interest was Consumer Sentiment soared to 74 from 69.9. These results came before today's other more chilling events.

Trim Tabs ( must watch) tells us where the flow of money went in 2011. Hint: it went under the mattress to the tune of $889 billion. This is pretty unsurprising but dramatic evidence of investor flight. And this type of behavior is one reason why trading volume is light and dominated primarily by HFTs and machines. Finally, it also explains why the stock market didn't blow a gasket to the downside Friday since all those going ashore have gone.

Gold was modestly lower, the euro much lower, crude oil flat, grains lower and base metals unchanged overall.

After some time S&P started dribbling the country downgrades out one at a time. The entire downgrade list became available not until after 5PM ET and is HERE. One thing perhaps many investors don't realize is this action will cause another chain of events including more bank downgrades and a restructuring of the EFSF (European Financial Stability Facility) and ESM (European Financial Stability Mechanism) given credit rating downgrades of some sovereigns like Italy.

Volume picked-up steam Friday on the news from JP Morgan (JPM) and S&P but it's still below the three month average of 213M shares for SPY. Breadth per the WSJ was negative reversing some overbought conditions.

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