The talk on Wall Street shifted this week from the pursuit of record highs to the future of the eurozone after the Cyprus banking crisis took center stage.
The week featured a meeting of a key US Federal Reserve policy committee, some important earnings reports and scores of fresh economic data. However, Wall Street’s eyes were focused squarely on the tiny island nation. The Cyprus crisis exploded into view the previous weekend, when Cyprus accepted a bailout from the EU and the IMF that included a tax on Cyprus bank deposits to raise 5.8 billion euros (US$7.5 billion).
The controversial measure was rejected by the Cypriot parliament. By Thursday, the clock was ticking on Cyprus after the European Central Bank vowed to halt emergency financing for Cypriot banks if the country did not come up with a bailout package by tomorrow.
The Cyprus crisis helped push markets lower three days this week. Still, the market rallied the other two days, including on Friday, when equities made up much of the week’s earlier losses.
In the end, stocks moved sideways. The Dow Jones Industrial Average closed the week out at 14,512.03, just a hair under last week’s level.
The broad-based S&P 500 finished the week at 1,556.89, down 0.2 percent, while the tech-rich NASDAQ Composite Index settled at 3,245.00, down 0.1 percent.
The market’s response to the latest flare-up in the eurozone crisis was moderate compared with other times, BTIG chief global strategist Dan Greenhaus said.
“Whereas in the past, investors reacted quickly and negatively to any eurozone headline, obviously that was not the case this time as investors seem to have learned a bit of a lesson,” Greenhaus said.
The market’s response also reflected Wall Street’s increasing confidence in the US economy following recent positive trends, BNY Convergex Group trader Anthony Conroy said.
“Had this market not been as resilient as its been, we could have been down a couple of percent” on some of the days this week, Conroy said.
Markets continued to smile on the Fed’s aggressive policy of purchasing bonds to depress interest rates. The policy was reaffirmed by the Federal Open Market Committee at the conclusion of a two-day policy meeting on Wednesday.
The coming week will see some important economic indicators, including durable goods orders, consumer spending and a revision on fourth-quarter economic growth.
However, Cyprus is expected to remain in focus, at least in the early part of the week.
“If something happens this weekend, that’ll be what you talk about on Monday and Tuesday,” Greenhaus said. “If Cyprus leaves the eurozone, then you start pricing in all sorts of contagion. People will start freaking out about the eurozone banking sector and, by extension, the global economy.”