SMF Notes Day Summary: Early Resistance Causes Stocks to Forfeit Gains

Stocks had looked like they would come rallying back from three straight losses, but the broad market's inability to overcome resistance in the early going prompted many participants to exit their positions. Stocks chopped along for the rest of the session and eventually settled with modest gains.

After watching the stock market descend more than 3% during the course of the past three sessions, buyers were finally brought back into the fold. Their interest was initially stirred because Europe's major bourses had been able to bounce on the back of a successful debt offering from Spain and news of improved eurozone manufacturing activity during December. Those themes also helped lift the euro off of the multi-month lows that it had set in the prior session. China reported overnight that it also experienced an improvement in manufacturing activity during December.

Market participants were also encouraged by domestic data. The latest initial weekly jobless claims tally fell to 366,000, which is the smallest count since May 2008. Economists polled by Briefing.com had generally expected a tally on the order of 390,000... Overall producer prices increased in November by 0.3%, which came as a surprise since a more tepid increase of 0.1% had been generally expected. However, core producer prices increased by an in-line 0.1%... The Empire State Manufacturing Survey improved to 9.5 for December. Many had expected a reading of just 3.0 for the Survey... The Philadelphia Fed Survey scored a reading of 10.3 in December, surpassing expectations for something closer to 4.5... Industrial production data was a bit more blemished, but that was generally overlooked. It showed a 0.2% decline in overall activity, contrasting with the consensus call for a 0.2% increase. Industrial production last declined in April.

Although quarterly reports were limited in quantity, a couple of notable announcements featured solid overall results, even if the response to those announcements varied. The latest from FedEx (FDX 83.47, +6.18) featured a better-than-expected bottom line. Discover Financial Services (DFS 23.07, -0.75) had an upside earnings surprise of its own and even increased its quarterly dividend.

Even with all the encouraging headlines, the S&P 500 still couldn't overcome resistance in the 1225 region, which contains its 50-day moving average. The failure to build on opening gains made many skeptical of the stock market's strength. That prompted plenty of people to pocket profits and drive down the major averages. Although the broad market stayed in positive territory, stocks never returned to session highs.

Financials had been the biggest beneficiaries of the early bounce by breaking out to a 1.5% gain. By session's end all of that was dashed -- the sector finished flat... Technology-related stocks lagged almost all session, causing the tech-rich Nasdaq to trail its counterparts. Tech stocks settled with a collective loss of 0.3%, which is the worst of the major sectors... Defensive-oriented issues displayed strength for most of the session. That helped the consumer staples, health care, and utilities sectors all book gains of 1% or more. Utilities stocks are actually among this year's strongest performers; the sector is currently sitting on a year-to-date gain of about 11%, while the broad market is down about 3% this year.

Advancing Sectors: Utilities +1.4%, Health Care +1.1%, Consumer Staples +1.0%, Industrials +0.7%, Materials +0.6%, Consumer Discretionary +0.2%, Telecom +0.2%
Unchanged: Financials
Declining Sectors: Energy -0.2%, Tech -0.3%

SMF Notes XLF Follow up to Fitch downgrade to viability rating of eight global trading and universal banks

Fitch Ratings has today taken rating actions on nine global trading and universal banks (GTUBs). The actions complete its assessment of the GTUBs, carried out in conjunction with a broad review of the ratings for the largest banking institutions in the world. Fitch has downgraded eight issuers' Viability Ratings (VRs) and affirmed one, removing them from Rating Watch Negative where they were placed on Oct. 13, 2011. The impact of VR downgrades on the banks' Issuer Default Ratings (IDRs) has depended to some extent on the level of their Support Rating Floors. The actions were motivated by Fitch's view that the GTUBs' business models are particularly sensitive to the increased challenges the financial markets face.

Bank of America (BAC) --Long-term IDR downgraded to 'A' from 'A+'; --Short-term IDR downgraded to 'F1' from 'F1+'; --Viability Rating downgraded to 'bbb+' from 'a-'.

Barclays plc (BCS) --Long-term IDR downgraded to 'A' from 'AA-'; --Short-term IDR downgraded to 'F1' from 'F1+'; --Viability Rating downgraded to 'a' from 'aa-'.

BNP Paribas (BNPQY) --Long-term IDR downgraded to 'A+' from 'AA-'; --Short-term IDR affirmed at 'F1+'; --Viability Rating downgraded to 'a+' from 'aa-'.

Credit Suisse AG (CS) --Long-term IDR downgraded to 'A' from 'AA-'; --Short-term IDR downgraded to 'F1' from 'F1+'; --Viability Rating downgraded to 'a' from 'aa-'.

Deutsche Bank AG (DB) --Long-term IDR downgraded to 'A' from 'AA-'; --Short-term IDR downgraded to 'F1' from 'F1+'; --Viability Rating downgraded to 'a' from 'aa-'.

Goldman Sachs (GS) --Long-term IDR downgraded to 'A' from 'A+'; --Short-term IDR downgraded to 'F1' from 'F1+'; --Viability Rating downgraded to 'a' from 'a+'.

Morgan Stanley (MS) --Long-term IDR affirmed at 'A'; --Short-term IDR affirmed at 'F1'; --Viability Rating downgraded to 'a-' from 'a'.

Societe Generale (SCGLY) --Long-term IDR affirmed at 'A+'; --Short-term IDR affirmed at 'F1+'; --Viability Rating downgraded to 'a-' from 'a+'.

UBS AG (UBS) --Long-term IDR affirmed at 'A'; --Short-term IDR affirmed at 'F1'; --Viability Rating affirmed at 'a-'.