Wednesday, December 21, 2011
Stocks will find it hard to replicate Tuesday’s strong performance, given concerns about the Euro-zone banking system following the bigger-than-expected refinancing operation by the European Central Bank (ECB). Oracle’s (ORCL) earnings miss will also likely weigh on market sentiment by raising doubts about the upcoming earnings season.
The expectation was for the ECB to provide roughly EUR300 billion in funding to Euro-zone banks, while the actual amount turned out to be EUR489 billion. The bigger amount could be interpreted as giving Euro-zone banks greater ability to buy government bonds. But the more likely explanation is that the increased demand for this type of financing is indicative of stress in the Euro-zone financial system, prompting the banks to tap this cheap source of funding. The modest uptick in Italian yields following the ECB action bears out this latter explanation.
In corporate news, Oracle’s earnings miss will remain in the spotlight today. We also have negative earnings surprises from Walgreens (WAG) and CarMax (KMX), while Nike (NKE) came ahead.
Sheraz Mian
Director of Research
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