The Nitty Gritty Details:
The markets had a lower open this morning as “macro clouds” show few, if any, signs of clearing. Little progress over the weekend in U.S. deficit talks along with ongoing skepticism about the path that European officials are taking toward resolving their debt issues are weighing on risky assets this morning. Sovereign debt issues are pressuring European equity markets, which are down about 1%, while the Hang Seng closed modestly lower. Safe-haven buying is pushing silver up a dollar, or 3%, to over $40, while gold is up nearly 10 dollars, or 0.6%, to within an eyelash of $1600. Meanwhile, crude, copper and grains are lower on global concerns.
Looking back at Friday, gains were not nearly enough to avoid a down week for stocks. Stocks finished higher Friday after another round of M&A and strong results from an Internet giant helped calm macro fears here and abroad and offset some weak economic data. Gains were not enough for the broad averages to extend a two-week winning streak as the S&P 500 lost more than 2% last week. Merger news and higher crude prices propelled Energy (+2.3%) to the top of the sector rankings, while double-digit gains in the aforementioned Internet player’s shares following its earnings report lifted Technology more than 1% on the day. On the flip side, Telecom, Financials and Health Care were the only sectors in the red. Precious metals caught a safe-haven bid, pushing gold toward $1600 and silver toward $40.
Around our financial planning services firm this morning, we were discussing four items that we thought would be of particular interest to our readers:
The Markets Broken Down:
1. Economics and central bank policy will most likely play second fiddle to the ongoing debt ceiling debate in the United States, the fiscal woes in Europe, and the heart of the second quarter earnings reporting season for S&P 500 companies. Housing data will dominate the week, but the key report of the week may very well be the July reading of the Philadelphia Fed manufacturing index. Overseas, data on consumer spending in Japan in June and manufacturing in July in China will draw the most attention from market participants. It is a relatively quiet week for the Federal Reserve, with only a few speakers on the docket. Meanwhile, the central banks in Brazil, Canada, India and South Africa meet this week, with only Brazil poised to raise rates. Indeed, many overseas central banks may now be much closer to the end of their tightening cycles than they were in the early part of 2011.
2. Earnings season kicks into “high gear” this week. 108 S&P companies are slated to report. After results from only a narrow group of industry leaders last week, this week’s broader swath of industries and market share positions should be much more revealing in terms of corporate America’s ability to meet very high expectations for the second half and whether the soft spot is over.
3. Update on the debt ceiling negotiations. Over the next two weeks, increasingly the major issue for markets will be the debt ceiling talks. A deal may need to be reached this week to have time to pass Congress by August 2nd. Legislators are working on two plans to resolve the deficit impasse, although it’s doubtful that either could pass both Houses of Congress. On Tuesday, the House is due to vote on a GOP “cut, cap and balance” program that would condition increasing the debt limit on a constitutional amendment requiring a balanced budget. In the Senate, Mitch McConnell and Harry Reid are formulating a proposal to empower President Obama to raise the debt limit by $2.5T in three increments while creating a panel to discuss cutting the deficit.
4. Gold passes $1,600 for the first time. Gold prices have hit $1,602 an ounce as the metal continues to reach record highs due to fears about Eurozone and U.S. debt. With this flight to safety, Europeans shared dropped, dragged down by some of the larger banks after stress test results released on Friday exacerbated the debt concerns
As always, email me here with your questions or comments. I love to hear from you and thoroughly enjoy the “intellectual debate” with our clients and friends that these opinions generate.
Greg Powell, CIMA
Note: The opinions voiced in this material are for general information and are not intended to be specific advice. Any indices such as the S & P 500 can’t be invested into directly. Past performance is no assurance of a future result.
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