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The major U.S. stock indexes declined this morning on worries about the ability of European banks to raise capital. UniCredit SpA, the largest bank in Italy, will sell 7.5 billion euros ($9.8 billion) of new shares in order to bolster its capital position. It had to price the shares at a 43-percent discount in order to get the deal done. Tight conditions in the credit markets are making it more costly for banks in Europe to raise capital and for euro-zone countries to refinance their sovereign debt.
The European Central Bank reported overnight deposits from financial institutions rose to an all-time high of 453 billion euros. Banks are worried about lending to each other so they have turned to the ECB for safety. In other news that hurt stocks, Luxembourg Prime Minister Jean-Claude Juncker said the European Union is facing a recession of unknown scope.
In U.S. economic news, the Commerce Department announced that bookings for factory goods climbed 1.8 percent in November after a revised 0.2-percent drop the month before. Wall Street economists were looking for a 2.0-percent increase, so the number fell short of expectations.
The major U.S. stock indexes were down slightly when the factory orders report was released 30 minutes into trading. They fell further and hit their lows for the day about 45 minutes later. The indexes worked their way back to unchanged levels by the end of the lunch hour in New York. They spent the rest of the day drifting sideways before going on to settle mixed.
The Dow Jones Industrial Average gained 21.04 points to record its highest finish since July 26. You have to look back to late October to find a higher close for the S&P 500 after it inched up by 24 cents today. The only loser among the majors was the Nasdaq Composite, which edged lower by 36 cents. Volume slipped on the NYSE, but was slightly higher on the Nasdaq.
Many of the market professionals interviewed on the financial stations think that economic conditions in the U.S. are generally improving and that stocks have a chance to go higher as long as the debt crisis in Europe does not worsen dramatically. Of course, U.S. stocks might continue to suffer declines on the days when the news from Europe is really bad. A difficulty for investors is that there is no way to predict when the next negative news story will come from Europe.
Sharelord® investors who want to be in the market can insure themselves against any possible declines by owning one put option for every 100 shares of stock they are using in their trades.
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