The Nitty Gritty Details:
Stocks are “clawing back” from a steep sell-off this morning. The sell-off was fueled in part by a “technical breakdown” in the market. Once the S&P 500 passed through the crucial 1,250 mark, it triggered a broader sell-off in the Dow and Nasdaq. By midday the selling lost momentum somewhat, perhaps in part to some upbeat comments from Fed governors Donald Kohn, Vincent Reinhart and Brian Madigan, who told the Wall Street Journal that the Fed may consider another round of stimulus. Overseas, Asian markets tracked the U.S. lower, while European stocks are under some pressure after a large French bank lowered its profit outlook.
Looking back at Tuesday, growth and the U.S. debt downgrade concerns overwhelmed what little positive reaction there might have been to the passage of the debt ceiling bill, sending the Dow to its eighth straight loss. For the S&P, the losing streak reached seven. Personal spending unexpectedly fell in June, following a string of weak economic data that has put equity investors increasingly on edge. Company news didn’t help as monthly auto sales were soft and several corporate earnings reports failed to satisfy the market. No S&P sector rose, with Industrials and Consumer Discretionary pacing the deadlines with losses of over 3%.
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. What are the odds that we head back into recession? The odds have probably gone up in the past week or so, and the economy is now closer to “stall speed” than it was before, but very few if any of the economic and financial market conditions that are typically in place ahead of a recession are in place now.
2. What are the expectations for the jobs report this Friday? Economists are looking for a 115,000 gain in private sector employment in July, an acceleration from the 57,000 jobs added in June. However, the market, after having seen the weak ISM report for July on Monday, is probably looking for a much weaker reading on jobs in July.
3. What is the current situation on oil prices and commodities? At close to $90 per barrel, oil is closer to the low end of the trading range it has been in this year. Although oil inventories remain high in the United States, and demand is tepid, a weaker dollar, the onset of hurricane season, and the potential for ongoing geopolitical unrest are all likely to push oil prices higher.
4. Does the debt limit agreement hamper the ability to pursue QE3 if needed? Simply put, no. While the Fed is unlikely to pursue QE3 (buying Treasury securities in the open market), the debt ceiling agreement would not hamper their ability to buy more.
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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