Earn Stocks' correction coming? Not that again

Earn Stocks' correction coming? Not that again Companies: NDX Apple Inc. RELATED QUOTES Symbol Price Change NDX 0.00 0.00 AAPL 585.57 +0.01 Related Content A trader in the S&P 500 options pit at the Chicago Board of Trade looks at an order board shortly after the Federal Reserve's decision to leave short-term interest rates untouched between zero and 0.25 percent in Chicago, January 25, 2012. REUTERS/Frank PolichView Photo A trader in the S&P 500 options pit at the Chicago Board of Trade looks at an order board shortly after the Federal Reserve's decision to leave short-term interest rates untouched between zero and 0.25 percent in Chicago, January 25, 2012. REUTERS/Frank Polich By Angela Moon NEW YORK (Reuters) - Investors are beginning to wonder if this 'Energizer Bunny' of a rally can just keep going without taking a break or a fall. Every Friday for the past couple of months, the question has hung in the back of investors' minds: Is the stock market's rally strong enough to continue without a correction? Even with the S&P 500 above levels unseen since before the financial crisis, the answer remains: Yes. The broad market index broke through 1,400 -- a psychologically important level -- for the first time in four years last week. On Friday, the S&P 500 closed at 1,404.17, its highest since May 20, 2008. At Friday's close, the index was up for nine out of the past 10 weeks. The rally has taken the Nasdaq up to a 12-year recovery high, while it lifted the Dow (DJI:DJI) comfortably above 13,000 to its highest level since December 2007. 'We are seeing this unbelievable rally in the market and yet the market is unbelievably complacent. We haven't been this bullish for a long time,' said Randy Frederick, director of trading and derivatives at the Schwab Center for Financial Research, based in Austin, Texas. Indeed, the CBOE Volatility Index or VIX (MXP:VIX), Wall Street's fear gauge, plunged to a five-year low despite the S&P 500's stunning gain of 12 percent for the year so far. The VIX measures the expected volatility in the S&P 500 index over the next 30 days and generally moves in the opposite direction of the broad market. Investors often use VIX options and futures as a hedge against a market decline. Frederick said the only concern is the wide spread between second- and third-month VIX futures, suggesting a rise in volatility in the longer term. But the front-month futures that expire this week have come down to levels near the spot VIX. The VIX fell 6.2 percent on Friday to end at 14.47, its lowest close since June 2007. 'I would like to see the VIX around 17 just because it tends to have a significant pop when there is bad news at current levels,' Frederick said, adding that 'frankly' there isn't that much negative news out there. STRENGTH IN MIDCAPS Further evidence of the market's bullish sentiment: The S&P 400 Midcap Index <.MID> has popped above the 1,000 mark, an area of strong resistance since last year, according to Ryan Detrick, a senior technical strategist with Schaeffer's Investment Research, in Cincinnati. 'It's a big area of resistance, but we have moved above this. If we manage to stay here, then the strength in the overall market will advance further,' Detrick said. 'Historically, April has been a strong month so we can even see the market going up to 1,440, which is the high made in May 2008,' he added. TRACKING THE BIG APPLE The direction of Apple shares (NSQ:AAPL - News) will also be in focus this week after the stock hit the $600 mark for the first time in history last week, only about a month after it topped 500. Apple currently accounts for about 18 percent of the Nasdaq 100 stock index (NAS:NDX - News). Its weighting was cut to 12.3 percent from 20.5 percent last April, but the price surge has pushed the stock's weighting back up, making this index of 100 well-known companies hostage to the performance of a few technology titans like Apple. With Apple's heavy weighting, investors are questioning whether the broad market can continue to rally even with a pullback in Apple shares. The Nasdaq Composite Index (NAS:COMP), the barometer of tech stocks, closed on Friday at 3,055.26 -- its highest close since November 2000. 'It's a name that a lot of people have exposure to so it definitely has an impact on indexes, but it seems even without Apple, the money gets put to work in other sectors and stocks,' Detrick said. While the VIX has been sliding, the expected volatility in Apple has increased, judging by a VIX index that tracks Apple options. Apple, like IBM and other bellwether names, has its own VIX index. The CBOE Apple VIX index <.VXAPL>, which measures the expected 30-day volatility of the underlying shares of Apple, jumped 35 percent last week, suggesting more gyrations ahead as more investors speculate on short-term moves.

Oil Fitch cuts Italy, Spain, other euro zone ratings

Oil Fitch cuts Italy, Spain, other euro zone ratings RELATED QUOTES Symbol Price Change TRI 27.82 -0.10 Related Content People wait to enter a government job centre in Malaga, southern Spain, January 27, 2012. REUTERS/Jon Nazca People wait to enter a government job centre in Malaga, southern Spain, January 27, 2012. REUTERS/Jon Nazca NEW YORK (Reuters) - Fitch downgraded the sovereign credit ratings of Belgium, Cyprus, Italy, Slovenia and Spain on Friday, indicating there was a 1-in-2 chance of further cuts in the next two years. In a statement, the ratings agency said the affected countries were vulnerable in the near-term to monetary and financial shocks. 'Consequently, these sovereigns do not, in Fitch's view, accrue the full benefits of the euro's reserve currency status,' it said. Fitch cut Italy's rating to A-minus from A-plus; Spain to A from AA-minus; Belgium to AA from AA-plus; Slovenia to A from AA-minus and Cyprus to BBB-minus from BBB, leaving the small island nation just one notch above junk status. Ireland's rating of BBB-plus was affirmed. All of the ratings were given negative outlooks. Fitch said it had weighed up a worsening economic outlook in much of the euro zone against the European Central Bank's December move to flood the banking sector with cheap three-year money and austerity efforts by governments to curb their debts. 'Overall, today's rating actions balance the marked deterioration in the economic outlook with both the substantive policy initiatives at the national level to address macro-financial and fiscal imbalances, and the initial success of the ECB's three-year Long-Term Refinancing Operation in easing near-term sovereign and bank funding pressures,' Fitch said. Two weeks ago, Standard & Poor's downgraded the credit ratings of nine euro zone countries, stripping France and Austria of their coveted triple-A status but not EU paymaster Germany, and pushing struggling Portugal into junk territory. With nearly half a trillion euros of ECB liquidity coursing through the financial system, some of which has apparently gone into euro zone government bonds, and with hopes of a deal to write down a slab of Greece's mountainous debt, even that sweeping ratings action had little market impact. The euro briefly pared gains against the dollar after Fitch cut the five euro zone sovereigns but soon jumped to a session high of $1.3208, according to Reuters data, its highest since December 13. Italy is widely seen as the tipping point for the euro zone. If it slid towards default, the whole currency project would be threatened. Italian Prime Minister Mario Monti, a technocrat who has won plaudits for his economic reform drive, said he reacted to Fitch's downgrade of Italy with 'detached serenity.' 'They signal things that are not particularly new, for example, that Italy has a very high debt as a percentage of GDP and they signal that the way the euro zone is governed as a whole is not perfect and we knew that too,' he said during a live interview on Italian television. 'They also say things that give a positive view of what is being done in Italy because there is much appreciation for policies of this government and this parliament,' he said. Fitch said of Italy: 'A more severe rating action was forestalled by the strong commitment of the Italian government to reducing the budget deficit and to implementing structural reform as well as the significant easing of near-term financing risks as a result of the ECB's 3-year Longer-term Refinancing Operation.' (Reporting by Rodrigo Campos, Daniel Bases, Philip Pullela and Pam Niimi, writing by Mike Peacock, Editing by James Dalgleish)

Forex France loses AAA-rating in blow to eurozone

Forex PARIS (AP) -- France's finance ministry says Standard & Poor's has cut the country's credit rating by one notch to AA. France's loss of its AAA-rating deals a heavy blow to the eurozone's ability to fight off its debt crisis. The country is the second-largest contributor to the currency union's bailout fund. S&P in December put 15 eurozone countries on creditwatch and other downgrades were expected later Friday. The cut in France's creditworthiness could also hurt President Nicolas Sarkozy's re-election chances. THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below. ROME (AP) -- Europe's ability to fight off its debt crisis was again thrown into doubt Friday when the euro hit its lowest level in over a year and borrowing costs rose on expectations that the debt of several countries would be downgraded by rating agency Standard & Poor's. Stock markets in Europe and the U.S. plunged late Friday when reports of an imminent downgrade first appeared and the euro fell to a 17-month low. The fears of a downgrade brought a sour end to a mildly encouraging week for Europe's heavily indebted nations and were a stark reminder that the 17-country eurozone's debt crisis is far from over. Earlier Friday, Italy had capped a strong week for government debt auctions, seeing its borrowing costs drop for a second day in a row as it successfully raised as much as euro4.75 billion ($6.05 billion). Spain and Italy completed successful bond auctions on Thursday, and European Central Bank president Mario Draghi noted 'tentative signs of stabilization' in the region's economy. A credit downgrade would escalate the threats to Europe's fragile financial system, as the costs at which the affected countries — some of which are already struggling with heavy debt loads and low growth — could borrow money would be driven even higher. The downgrade could drive up the cost of European government debt as investors demand more compensation for holding bonds deemed to be riskier than they had been. Higher borrowing costs would put more financial pressure on countries already contending with heavy debt burdens. In Greece, negotiations Friday to get investors to take a voluntary cut on their Greek bond holdings appeared close to collapse, raising the specter of a potentially disastrous default by the country that kicked off Europe's financial troubles more than two years ago. The deal, known as the Private Sector Involvement, aims to reduce Greece's debt by euro100 billion ($127.8 billion) by swapping private creditors' bonds with new ones with a lower value, and is a key part of a euro130 billion ($166 billion) international bailout. Without it, the country could suffer a catastrophic bankruptcy that would send shock waves through the global economy. Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos met on Thursday and Friday with representatives of the Institute of International Finance, a global body representing the private bondholders. Finance ministry officials from the eurozone also met in Brussels Thursday night. 'Unfortunately, despite the efforts of Greece's leadership, the proposal put forward ... which involves an unprecedented 50 percent nominal reduction of Greece's sovereign bonds in private investors' hands and up to euro100 billion of debt forgiveness — has not produced a constructive consolidated response by all parties, consistent with a voluntary exchange of Greek sovereign debt,' the IIF said in a statement. 'Under the circumstances, discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach,' it said. Friday's Italian auction saw investors demanding an interest rate of 4.83 percent to lend Italy three-year money, down from an average rate of 5.62 percent in the previous auction and far lower than the 7.89 percent in November, when the country's financial crisis was most acute. While Italy paid a slightly higher rate for bonds maturing in 2018, which were also sold in Friday's auction, demand was between 1.2 percent and 2.2 percent higher than what was on offer. The results were not as strong as those of bond auctions the previous day, when Italy raised euro12 billion ($15 billion) and Spain saw huge demand for its own debt sale. 'Overall, it underscores that while all the auctions in the eurozone have been battle victories, the war is a long way from being resolved (either way),' said Marc Ostwald, strategist at Monument Securities. 'These euro area auctions will continue to present themselves as market risk events for a very protracted period.' Italy's euro1.9 trillion ($2.42 trillion) in government debt and heavy borrowing needs this year have made it a focal point of the European debt crisis. Italy has passed austerity measures and is on a structural reform course that Premier Mario Monti claims should bring down Italy's high bond yields, which he says are no longer warranted. Analysts have said the successful recent bond auctions were at least in part the work of the ECB, which has inundated banks with cheap loans, giving them ready cash that at least some appear to be using to buy higher-yielding short-term government bonds. Some 523 banks took euro489 billion in credit for up to three years at a current interest cost of 1 percent. ___ Steinhauser contributed from Brussels. AP Business writer David McHugh in Frankfurt contributed.

Signals China to reform, grow economy, IMF eyes freer yuan

Signals Chinese Vice-Premier Li Keqiang gestures as he talks to European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy at the Great Hall of the People in Beijing February 15, 2012. REUTERS/How Hwee Young/PoolView Photo Chinese Vice-Premier Li Keqiang gestures as he talks to European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy at the Great Hall of the People in Beijing February 15, 2012. REUTERS/How Hwee Young/Pool By Kevin Yao and Koh Gui Qing BEIJING (Reuters) - China cannot delay tough economic reforms, Vice Premier Li Keqiang said on Sunday, underscoring the top leadership's push for market-based change after the sacking last week of an ambitious provincial leader who wanted a bigger state role in the economy. Li, widely expected to succeed Wen Jiabao as premier in a leadership transition that begins later this year, promised flexible policies to keep growth brisk and prices stable, with a focus on boosting domestic demand and pursuing structural reforms to make growth more stable and balanced. 'China has reached a crucial period in changing its economic model and (change) cannot be delayed. Reforms have entered a tough stage,' Li said, echoing comments made by Wen last week. 'We will make policies more targeted, flexible and forward-looking to maintain relatively fast economic growth and keep price levels basically stable,' Li said in a speech at an economic policy conference, attended by top Chinese officials, the head of the IMF and dozens of foreign business leaders. He said China would 'deepen reforms on taxes, the financial sector, prices, income distribution and seek breakthroughs in key areas to let market forces play a bigger role in resource allocation'. Li's renewed emphasis on reform-led growth comes after Wen said slower growth and bolder political reform must be embraced to keep the world's second largest economy from faltering and to spread wealth more evenly, promising to use his last year in power to attack discontent that he warned could end in chaos. Wen told a news conference at the end of the National People's Congress (NPC) that growth would be made more resilient to external pressures, domestic property and inflation risks deflated and 10.7 trillion yuan ($1.7 trillion) in debt racked up by local governments dealt with, while also promoting political change. He cut China's official 2012 growth target to 7.5 percent, down from the 8 percent targeted in each of the last eight years, aiming to create leeway to deliver reform of items including subsidies, without igniting inflation. China's annual rate of inflation cooled to 3.2 percent in February, below the government's 4 percent target for the first time in more than a year. But policymakers remain particularly sensitive to elevated commodity prices, given China's huge imports of raw materials. PRO-GROWTH POLICIES CRUCIAL Zhang Ping, head of the country's top planning agency, the National Development and Reform Commission, told the Sunday conference that economic policies maintaining relatively fast growth were key to the country's future. 'First of all, we need to maintain steady and relatively fast economic growth -- development is the key for resolving all problems in China,' Zhang said. The government would maintain prudent monetary and pro-active fiscal policies, and stand ready to fine-tune settings -- a consistent refrain from China's leaders since the autumn of 2011. The show of unity over pro-market reform took on new significance last week when China's central leadership moved to bolster control over the southwest city-province of Chongqing after ousting its contentious but popular chief, Bo Xilai. The calls for unity with the ruling Communist Party's top leaders were emblazoned on the front pages of Chongqing newspapers on Saturday. They made no mention of Bo, removed from power after a scandal when his Vice Mayor Wang Lijun took refuge in February in a U.S. consulate until he was coaxed out. After arriving in Chongqing in 2007, Bo, 62 and a former commerce minister, turned it into a bastion of Communist revolutionary-inspired 'red' culture and egalitarian growth, winning national attention with a crackdown on organized crime. His self-promotion and revival of Mao Zedong-inspired propaganda irked moderate officials. But his populist ways and crime clean-up were welcomed by many residents and others who hoped Bo could try his policies nationwide. Li said that while the overall trend of China's economy was stable with sound fundamentals, it faced structural obstacles that must be overcome, adding that Beijing would push forward structural reforms while encouraging technological innovations to generate new sources of economic growth. CURRENCY REFORM CARROT International Monetary Fund managing director, Christine Lagarde, dangled an additional reform carrot at the same economic forum on Sunday, saying that the yuan could become a global reserve currency with the right mix of market-oriented structural change. 'What is needed is a roadmap with a stronger and more flexible exchange rate, more effective liquidity and monetary management, with higher quality supervision and regulation, with a more well-developed financial market, with flexible deposit and lending rates, and finally with the opening up of the capital account,' Lagarde said. 'If all that happens, there is no reason why the renminbi (yuan) will not reach the status of a reserve currency occupying a position on par with China's economic status.' China, the world's biggest exporting nation and the second-largest importer, has long wanted to break the dollar's dominance as the principal global unit of cross-border trade, in part to battle internal inflation risks and also to enhance Beijing's influence on the international financial system. China's has a closed capital account system and its currency is tightly controlled. Although Beijing has increased the use of the yuan to settle cross border trade, undertaking a series of reforms in recent years to that end, yuan settlement was only about $300 billion in 2011, which Chinese exports were worth about $1.9 trillion. Li said he expected China's total trade to maintain double-digit growth this year. The government has an official target of 10 percent growth in both imports and exports for 2012. Exports are a key source of demand and jobs for China's vast factory sector and have been a principal driver of wealth creation for much of the last decade in the wake of the country's accession to the World Trade Organization. China's trade balance plunged $31.5 billion into the red in February as imports swamped exports to leave the largest deficit in at least a decade and fuel doubts about the extent to which frail foreign demand drove the drop. Li said that there were some encouraging signs emerging about the pace of global economic recovery, and forecast that China's total trade would top $10 trillion in the five years 2011-2015, but added that the outlook was not certain, with efforts to resolve Europe's debt crisis still evolving. Economists expect China's annual economic growth to slow to close to 8 percent in the first three months of 2012, down from 8.9 percent in the last quarter of 2011. That would be the fifth successive quarter of slower growth and leave China on track to end the year with its weakest expansion in a decade. A raft of economic indicators in the last two weeks have signaled that China's economy is on a gentle glide lower and on course to avoid a so-called hard landing. (Writing by Nick Edwards; Editing by Don Durfee and Jonathan Thatcher)

Earn Stocks' correction coming? Not that again

Earn Stocks' correction coming? Not that again Companies: NDX Apple Inc. RELATED QUOTES Symbol Price Change NDX 0.00 0.00 AAPL 585.57 +0.01 Related Content A trader in the S&P 500 options pit at the Chicago Board of Trade looks at an order board shortly after the Federal Reserve's decision to leave short-term interest rates untouched between zero and 0.25 percent in Chicago, January 25, 2012. REUTERS/Frank PolichView Photo A trader in the S&P 500 options pit at the Chicago Board of Trade looks at an order board shortly after the Federal Reserve's decision to leave short-term interest rates untouched between zero and 0.25 percent in Chicago, January 25, 2012. REUTERS/Frank Polich By Angela Moon NEW YORK (Reuters) - Investors are beginning to wonder if this 'Energizer Bunny' of a rally can just keep going without taking a break or a fall. Every Friday for the past couple of months, the question has hung in the back of investors' minds: Is the stock market's rally strong enough to continue without a correction? Even with the S&P 500 above levels unseen since before the financial crisis, the answer remains: Yes. The broad market index broke through 1,400 -- a psychologically important level -- for the first time in four years last week. On Friday, the S&P 500 closed at 1,404.17, its highest since May 20, 2008. At Friday's close, the index was up for nine out of the past 10 weeks. The rally has taken the Nasdaq up to a 12-year recovery high, while it lifted the Dow (DJI:DJI) comfortably above 13,000 to its highest level since December 2007. 'We are seeing this unbelievable rally in the market and yet the market is unbelievably complacent. We haven't been this bullish for a long time,' said Randy Frederick, director of trading and derivatives at the Schwab Center for Financial Research, based in Austin, Texas. Indeed, the CBOE Volatility Index or VIX (MXP:VIX), Wall Street's fear gauge, plunged to a five-year low despite the S&P 500's stunning gain of 12 percent for the year so far. The VIX measures the expected volatility in the S&P 500 index over the next 30 days and generally moves in the opposite direction of the broad market. Investors often use VIX options and futures as a hedge against a market decline. Frederick said the only concern is the wide spread between second- and third-month VIX futures, suggesting a rise in volatility in the longer term. But the front-month futures that expire this week have come down to levels near the spot VIX. The VIX fell 6.2 percent on Friday to end at 14.47, its lowest close since June 2007. 'I would like to see the VIX around 17 just because it tends to have a significant pop when there is bad news at current levels,' Frederick said, adding that 'frankly' there isn't that much negative news out there. STRENGTH IN MIDCAPS Further evidence of the market's bullish sentiment: The S&P 400 Midcap Index <.MID> has popped above the 1,000 mark, an area of strong resistance since last year, according to Ryan Detrick, a senior technical strategist with Schaeffer's Investment Research, in Cincinnati. 'It's a big area of resistance, but we have moved above this. If we manage to stay here, then the strength in the overall market will advance further,' Detrick said. 'Historically, April has been a strong month so we can even see the market going up to 1,440, which is the high made in May 2008,' he added. TRACKING THE BIG APPLE The direction of Apple shares (NSQ:AAPL - News) will also be in focus this week after the stock hit the $600 mark for the first time in history last week, only about a month after it topped 500. Apple currently accounts for about 18 percent of the Nasdaq 100 stock index (NAS:NDX - News). Its weighting was cut to 12.3 percent from 20.5 percent last April, but the price surge has pushed the stock's weighting back up, making this index of 100 well-known companies hostage to the performance of a few technology titans like Apple. With Apple's heavy weighting, investors are questioning whether the broad market can continue to rally even with a pullback in Apple shares. The Nasdaq Composite Index (NAS:COMP), the barometer of tech stocks, closed on Friday at 3,055.26 -- its highest close since November 2000. 'It's a name that a lot of people have exposure to so it definitely has an impact on indexes, but it seems even without Apple, the money gets put to work in other sectors and stocks,' Detrick said. While the VIX has been sliding, the expected volatility in Apple has increased, judging by a VIX index that tracks Apple options. Apple, like IBM and other bellwether names, has its own VIX index. The CBOE Apple VIX index <.VXAPL>, which measures the expected 30-day volatility of the underlying shares of Apple, jumped 35 percent last week, suggesting more gyrations ahead as more investors speculate on short-term moves.