Last week’s market tug of war seemed to be better than expected U.S. earning versus European woes. Europe clearly won Friday as the markets spent the good part of the trading session face down in the mud, refusing to move after their loss.

While a number of big names including General Electric beat earning estimates, only 45% of companies that have reported topped the revenue expectations. That's the lowest percentage since the first quarter of 2009, according to FactSet. Over the past four years on average, 56% of companies reported actual sales above the mean sales estimate at this same point in earnings season.

So Europe was easily able to yank the proverbial rope across the center line as things from Spain have gotten particularly dicey. Home prices are absolutely imploding, bad loans are mushrooming, and bank deposits are dwindling. According to reports out of Europe, 100 billion euros will not be enough to shore up Spain’s banking system.

And speaking of banks, Moody’s downgraded the credit rating of 13 Italian banks. According to Moody’s the two main factors for the downgrade were:

“1. Italy is more likely to experience a further sharp increase in its funding costs or the loss of market access than at the time of our rating action five months ago due to increasingly fragile market confidence, contagion risk emanating from Greece and Spain and signs of an eroding non-domestic investor base.

2. Italy's near-term economic outlook has deteriorated, as manifest in both weaker growth and higher unemployment, which creates risk of failure to meet fiscal consolidation targets which could weaken market confidence further, raising the risk of a sudden stop in market funding. “

Of course this tug of war isn’t over because we all know that the United States has the secret rope pulling weapon. When you have Ben Bernanke and his printing presses as an on-demand anchor, the markets won’t remain down for long.

From the tug of war, to the tug of weird, Silver Sponge Bob Square Pants coins minted in New Zeland were among assets seized by FBI agents from the vault at Peregrine Financial Groups headquarters last week.
So while there may be a lack of confidence in the broader financial markets, remember “IN SPONGEBOB WE TRUST!”

Trade well and follow the trend, not the so-called “experts.”

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Larry Levin
President & Founder - TradingAdvantage