15 Reasons Markets Braced for Unknown Debt Limit Conclusion

Dow 12,143 S&P500 1,292 Nasdaq 2,756 Gold 1,626 Oil 95

The Dow (NYSE:DIA), S&P (NYSE:SPY) and Nasdaq (NASDAQ:QQQ) were all victims of Washington’s bipartisan bickering. Oil (NYSE:USO) took a solid hit after weak US GDP data. Gold (NYSE:GLD) was the safe haven of choice this week.

A Deeper Look at Gold:  Are Support and Resistance Levels in Precious Metals Holding?

Now, for our analysis of the 15 reasons markets moved this week:

Monday

1) Debt-ceiling impasse. Unless you’ve had your head in the sand the last few months, you know that Congress is seemingly no closer to reaching a deal for raising the debt ceiling by the Treasury’s August 2 deadline, which is now just over a week away. Whenever lawmakers appear to have advanced in their discussions, markets jump, and whenever discussions fall apart, as inevitably do, markets drop. But for the most part, investors have become insulated to the daily fluctuations. While the three major indices are down today, none are suffering huge losses. Instead investors are waiting like a deer in the headlights to see what the car will do before making a move. It’s almost impossible to fathom that our elected officials could be so unbending and unscrupulous as to allow the country to default on its obligations, but then again, that’s the course they’re on right now. At this point, no one really has any idea which way this thing will go, and that’s reflected in today’s stagnant market.

2) Thursday. After huge gains last Thursday, markets were bound to be hungover. We were told that Obama and Boehner were close to reaching a budget deal that would raise the debt ceiling. That didn’t happen. We were told that European leaders finally had a plan to save Greece, but it didn’t stop Greek bonds from being cut to junk. Meanwhile, last week’s jobless claims figures, at first lost in the warm haze of childlike optimism that characterized investor sentiment on Thursday, have reared their ugly head, and investors are perhaps realizing that solutions to the biggest problems facing global markets aren’t necessarily going to effect a major improvement of the economy, only prevent its further decay. What we ultimately need to bring us back from the brink are for the jobs and housing markets to improve, and so far we aren’t really making any progress in those arenas, nor have lawmakers paid them much attention as they continue to squabble over a deal that should have been finalized months ago. Don’t Miss: 3 Top Crooks Still Roaming Free After the Economic Crash.

3) Tech. While Boeing (NYSE:BA), Travelers Companies (NYSE:TRV), and Bank of America (NYSE:BA) were among some of the biggest drags on the Dow, with 26 of its 30 components in the red today, the index got a boost from tech companies Microsoft (NASDAQ:MSFT) and Hewlett-Packard (NYSE:HPQ), both climbing over 1% today. But Apple (NASDAQ:AAPL) was probably today’s biggest standout, at one point touching a record $400 a share before settling the day up 1.32% to $398.50. The tech giant’s share price has gained 9.2% since its earnings report last week. Netflix (NASDAQ:NFLX) gained 1.79% today in anticipation of its afternoon earnings report.

Tuesday

1) Obama/Boehner. Last week they were working together and everyone was confident that a budget deal was on its way, but when House Speaker Boehner walked out on talks on Friday, that no longer looked to be the case. Then last night, Obama addressed the nation, re-affirming his intention to veto any deal that didn’t include both tax revenue and spending cuts. Following his address, Boehner spoke, criticizing Obama’s inability to compromise while himself refusing to compromise with the president. The Treasury’s deadline is now only 7 days away, and there isn’t even a complete bill currently before the House or Senate, and yet investors aren’t panicking. Markets are down, but not as much as would be expected if the economy was about to be dealt as huge a blow as would be a government default on the debt (NYSE:TLT). Whether it’s because people don’t understand just what a default could mean for the economy, or because they are confident their lawmakers will come to a resolution in time, investors aren’t running scared. The current state of budget talks may be preventing markets from climbing excessively, but they don’t seem to be depressing them much either.

2) Earnings. Were it not for the weight of the debt ceiling, today’s markets may have been fared better. With 75% of S&P 500 (NYSE:SPY) companies beating earnings expectations in their latest quarters, this earnings season has been overwhelmingly positive, and points to increased spending that, if given the chance, could stimulate the economy into the recovery we’ve been waiting on. A lot of the the biggest earners during the latest quarter were tech companies, including Chinese Internet search company Baidu (NASDAQ:BIDU) with second quarter earnings climbing 95% over a year earlier, and Apple (NASDAQ:AAPL) reported net income twice that of the previous year.

3) New home sales. For the second month in a row, new home sales (NYSE:IYR) slipped in June, with the Census Bureau reporting an annual sales rate of 312,ooo new homes last month, down from 315,000 in May. That’s bad news for the housing market considering this time of year usually sees increasing sales. However, June sales were still up 1.6% over last year, so like most of our economic news of late, it’s effect on the markets hasn’t been wholly negative or positive. And Case-Shiller said housing prices actually rose month over month.

Wednesday

1) Debt ceiling. Probably the two dirtiest words in the American vocabulary today. President Obama and members of Congress have been working for months on a budget deal that both the Republican-led House and the Democrat-led Senate can agree upon, to no avail. And neither side would agree to raise the debt (NYSE:TLT) ceiling until a deficit-reduction plan is in place. Unfortunately, every bill proposed so far has been shot down, and Republicans are hurriedly working on another that will surely be shot down as well, by members of both the right and left. Democrat and Senate Majority Leader Harry Reid’s plan has a chance, with a significant amount of bipartisan support, but we haven’t seen it yet, and it’s questionable whether the plan will make it through a House vote. Oh yeah, and did I mention that the U.S. credit rating is likely to be cut even if a bill is passed in time to raise the debt ceiling? Apparently Reid’s and Boehner’s plans won’t cut enough to make ratings services happy.

2) Weak economic data. The Fed released their Beige Book survey today showing that the economic recovery has severely slowed, only compounding the depressing effect of news that durable goods orders fell 2.1% in June, which had Dow manufacturers like 3M (NYSE:MMM), United Technologies (NYSE:UTX), General Electric (NYSE:GE), and Caterpillar (NYSE:CAT) all trading in the red today.  According to the Fed’s report, consumer spending stagnated with higher fuel prices taking a bite out of disposable income. The report also predicted little improvement in jobless figures in the second half of the year.

3) Earnings. Fortunately not all investors are taking their cues from the government. With earnings report season in full swing, a few companies have seen shares skyrocket in the last week on better-than-expected earnings reports. Just a few of the stocks preventing the markets from completely bottoming out are Boeing (NYSE:BA) and Amazon (NASDAQ:AMZN). Dunkin Brands (NASDAQ:DNKN) also had a bright IPO today.

Thursday

1) Jobless figures. Giving the markets an early boost this morning was news that last week initial jobless claims fell below 400,000 for the first time since early April. Though that number still seems high, economists say that, when jobless claims fall below 400,000, that means the economy is adding more jobs than it’s losing. All of the major indices were up this morning on the news, climbing into the early afternoon before taking a dip. The Dow climbed as high as 12,380 points, but unfortunately wasn’t able to hold onto the morning’s gains, ultimately settling in the red, as did the S&P 500, with only the Nasdaq Composite holding on to enough of its gains to finish the day up, though well below its high just before noon.

2) Pending home sales. Yep, those improved as well. According to the National Association of Realtors, pending home sales continued to increase in June, up 2.4% over May and a whopping 19.8% over June 2010. Last month is only the second since April 2010 to show year-over-year growth, and this upward trend bodes well for the housing market (NYSE:IYR), which has been slow to recover from the financial crisis.

3) Debt ceiling. Until Congress agrees on a new budget and a plan to raise the debt ceiling, markets are going to continue to be weighted down by the pressure of impending default. It doesn’t matter that unemployment may start to decline, or that pending home sales are up — if the government defaults on its obligations, all the progress that’s been made so far will be thrown out the window.

Friday

1) Debt ceiling. Every day I have to include the debt ceiling as one of the reasons the markets were down, a little piece of me dies. Four days until the Treasury’s deadline and Congress seems to have reached a stalemate. Boehner keeps pushing forward with his bill, and finally has enough votes in the House for it to pass, only to get voted down soon as it reaches the Senate, where Democrats and Republicans alike have vowed they will block it. Senate Majority Leader Harry Reid is working on a budget plan that has wider support in the Senate, but it has yet to be put to a vote, until which point there’s no knowing which way it will go, especially in the Republican-led House. So in the meantime, we wait and listen to China (NYSE:FXI) complain about the US.

2) GDP. If yesterday’s positive economic news wasn’t enough to counteract the depressing effect of the looming debt ceiling, today’s bad economic news sure isn’t going to help matters. Stocks took a huge dip this morning right out of the gate after the Commerce Department reported GDP grew at an annual rate of 1.3% during the second quarter, well below projections of 1.8% growth. While data like durable goods orders and consumer spending give us an idea of how the economy is progressing, GDP covers the whole kit and kaboodle, and the most recent figures are not good.

3) Treasuries. While short-term Treasuries saw a moderate selling-off on Friday, as would be expected, the price on the benchmark 10-year note (NYSE:TLT) rose, pushing the yield down from 2.91% to 2.78%, the biggest one-day drop since December 2010. Longer-term investors tend to focus more on the economy than more immediate issues like those plaguing Washington at the moment, so the fact that the price of long-term notes is up shows that investors have a positive economic outlook.

BONUS: 9 Investments to Hedge Against a US Debt Default.

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