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Stock Market Update for 05/23/2011

May 23, 2011

stock market updateStocks moved sharply lower at the start of trading on Monday, extending the downward trend seen over the past few weeks. The major averages all showed notable moves to the downside, falling to their lowest intraday levels in a month.

The initial weakness on Wall Street comes amid renewed concerns about the financial situation in Europe after Standard and Poor’s downwardly revised its outlook for Italy‘s credit ratings to negative from stable.

Standard and Poor’s said that the move reflects its views of the heightened downside risks in the Italian government’s debt reduction plan.

S&P credit analyst Eileen Zhang said, “In our view, Italy’s current growth prospects are weak, and the political commitment for productivity-enhancing reforms appears to be faltering, and potential political gridlock could contribute to fiscal slippage.”

“As a result, we believe Italy’s prospects for reducing its general government debt have diminished,” Zhang added.

The announcement from S&P comes after Fitch Ratings lowered its credit ratings on Greece to B+ from BB+ on Friday. Fitch said the downgrade was partly due to concerns that Greece will need to undertake further austerity measures to reach the goal of reducing the 2011 budget deficit to 7.5 percent of GDP.

With the actions raising concerns about the outlook for European debt, the major European markets have shown notable moves to the downside on the day.

Software stocks have shown a substantial move to the downside in early trading, dragging the NYSE Arca Software Index down by 2.5 percent. With the loss, the index has fallen to its lowest intraday level in nearly two months.

With the price of oil falling by nearly $3 a barrel, energy stocks have also come under considerable selling pressure. Networking, health insurance, and biotechnology stocks are also posting notable losses, moving lower along with most of the major sectors.

The major averages have not seen much follow-through on their initial downward move but remain firmly negative. The Dow is down 147.54 points or 1.2 percent at 12,364.50, the Nasdaq is down 45.99 points or 1.6 percent at 2,757.33 and the S&P 500 is down 16.79 points or 1.3 percent at 1,316.48.

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