Market Recap: Stocks Rally, But Fitch Cuts U.S. Outlook to 'Negative

Markets closed up on Wall Street today:

• Dow +2.59 percent
• S&P +2.92 percent
• Nasdaq +3.52 percent
• Oil +1.20 percent
• Gold +1.62 percent

On the commodities front:

• Oil (NYSE:USO) climbed to $97.93 a barrel
• Gold (NYSE:GLD) went up to $1,715.90 an ounce
• Silver (NYSE:SLV) rose 3.39 percent to settle at $32.15

(Related: Did Households Reduce Debt in Anticipation of Holiday Shopping Binge?)

Today’s markets were up because:

1) Europe: Markets rallied today on hopes that euro-zone leaders will stitch together a new fiscal union meant to stabilize European Union. Investors hope the plan, being pushed by French Prime Minister Nicolas Sarkozy, with German Chancellor Angela Merkel in tow, will open the way for the European Central Bank to bail out Italy and Spain.

2) Consumer spending: Reports of good Black Friday weekend sales contributed to today’s broad rally. Major retailers reported record sales of $52.4 billion over Black Friday weekend — up 16 percent from last year — according to a survey by the National Retail Federation released Sunday.

Retailers such as Wal-Mart, Home Depot, Best Buy, Macy’s, and Saks were trading higher today on the news.

3) Banks: As is the case with most broad rallies, the financial sector was the biggest beneficiary. Investors seem to have been left unfazed by a report today exposing the biggest financial firms’ reliance on the Federal Reserve’s bailout program, as the country’s six biggest banks—Morgan Stanley, Citigroup, Goldman Sachs, JPMorgan, Bank of America, and Wells Fargo—were all trading higher, though they reportedly borrowed $460 billion from the Fed just to survive the crisis.

However, despite these gains in the markets, there is some bad news.

"Fitch has come out and affirmed the US credit rating as AAA, but moved the outlook down to 'negative' from 'stable,'" writes Mark Gongloff of the Wall Street Journal.

What does this mean? It means that the U.S. now has more than a 50 percent chance that it will be downgraded again in the next two years.

But why did Fitch change the outlook to "negative"?

The Negative Outlook reflects Fitch’s declining confidence that timely fiscal measures necessary to place U.S. public finances on a sustainable path and secure the U.S. ‘AAA’ sovereign rating will be forthcoming following failure of the Congressional Joint Select Committee on Deficit Reduction [Super Congress] to agree at least $1.2 trillion of measures to cut the federal budget deficit over the next 10 years as mandated under the Budget Control Act passed in August...

Translation: the Super Congress failed to accomplish anything and now the credit ratings agencies might toy with America's credit ratings . . . again.

Thank you, Washington, D.C.

Remember what happened last time the U.S. was downgraded? One can only imagine how well it will go over if it happens a second time within a 3-year period.

[Editor's note: portions of the above are a cross post that originally appeared on Wall St. Cheat Sheet.]