Markets closed down on Wall Street today: Dow -2.19%, S&P -2.56%, Nasdaq -2.75%, Oil -1.73%, Gold +2.34%.
Today’s markets were down because:
1) Consumer spending. With consumer spending dropping off in July for the first time since September 2009, it looks as though the economic recovery might be coming to a standstill. This morning’s report from the Commerce Department shows that the economy only grew 1.3% during the second quarter, while both income and disposable income only rose 0.1%, the slowest rate of growth since November 2010, and consumer spending contracted 0.2%. The news only compounds the effect of Monday’s ISM report showing that growth in the manufacturing industry also slowed in July.
2) Debt deal. With a much-awaited debt deal finally passed in the nick of time, markets haven’t gotten the boost one might have expected as investors realize that the deal, which issues huge cuts to spending without touching taxes, won’t actually help the stagnant economy. Yesterday anticipation of the deal helped to offset negative economic data, but now Congress has loosed its reigns on the markets, which will now have to take their cues from the economy.
3) Debt deal, take two. While the debt deal will be cutting social spending, student aid, and government agency budgets, it will also be directly affecting many large corporations that rely heavily on government sales. Healthcare stocks like Pfizer (NYSE:PFE), and Humana (NYSE:HUM) are down as they expect weakened profits as Congress cuts funding for Medicare and Medicaid. The capital goods sector is also being hit by the deal, with huge cuts to defense spending putting contracts with tech, manufacturing, and aerospace companies like United Technologies (NYSE:UTX), Honeywell (NYSE:HON), and Lockheed Martin (NYSE:LMT) at risk.