MarketView for July 20

Summary

The major equity indexes ended a three-day winning streak on Friday as Europe's debt crisis engulfed markets with renewed fears that Spain may be unable to dodge a costly bailout. The news that the heavily indebted region of Valencia asked Madrid for financial aid interrupted a period of relative calm for Wall Street and raised the specter that the euro zone's fourth-largest economy may itself need to be rescued.

Bank shares, sensitive to signs of trouble in Europe, were among the day’s largest losers. A good example was Morgan Stanley, which ended the day down 3.5 percent to close at $12.78.

Valencia, which already used several government credit lines in the first half of the year to meet debt repayments, still needs to repay 2.85 billion euros by the end of the year. That figure is not huge compared to the billions used in other EU bailouts, but investors are concerned about the overall stability of the country and its banks.

The euro slid broadly, setting a two-year low against the dollar. The single currency fell as low as $1.21, its weakest level since mid-June 2010. Spanish benchmark bond yields hit euro-era highs as the yield on the 10-year bond reached 7.3 percent.

The news overshadowed the corporate earnings of General Electric, which exceeded expectations, and the strong advertising revenue at Google. GE ended the day up 0.3 percent to close at $19.87, giving up some of its earlier gains. At the same time, Google added 3 percent to its share price, ending the day at $610.82

Europe had been on the back burner for much of July, allowing Wall Street to move higher. Since early June the S&P 500 has gained about 7 percent, helped by a deal to save Spanish banks and a European Union summit that pointed to greater resolve among EU leaders.

Even with Friday's loss, the S&P 500 posted its second weekly gain in a row, climbing 0.4 percent. The Dow ended the week up 0.4 percent and the Nasdaq composite index was  0.6 percent for the week.

The resurfacing of euro zone debt problems in the headlines was a reminder that the bloc's problems are far from over. Spain's government also cut its economic growth forecast, indicating the country would stay mired in recession well into next year.

Schlumberger and Baker Hughes, the No. 1 and No. 3 oilfield service companies respectively, posted higher-than-expected profits as revenue piled up outside North America despite dark clouds looming over the world economy. Schlumberger climbed 1 percent to $69.33, while Baker Hughes ended the day up 9 percent to $45.59.

Xerox fell 4.4 percent to $6.87 after cutting its full-year profit forecast, as it braces for tough economic conditions in Europe. Kayak Software was up 27.6 percent to $33.18 on their Nasdaq debut and Palo Alto Networks was up 26.5 percent to close at $53.

About 6.7 billion shares changed hands on the three major equity exchanges, in-line with the 50-day moving average.