Dow 11,444 S&P500 1,199 Nasdaq 2,532 Gold 1,663 Oil 86
The Dow (NYSE:DIA), S&P (NYSE:SPY) and Nasdaq (NASDAQ:QQQ) took a nosedive this week after one of the worst days for the Dow in market history. Oil (NYSE:USO) also got slammed on concerns over an economic slowdown. Once gain, Gold (NYSE:GLD) kicked ass.
In breaking news, Standard & Poor’s (NYSE:MHP) downgraded the US credit rating late Friday (during the same time the Fed announces bank failures). There’s a lot of criticism regarding a $2 Trillion error made by S&P, so the real fallout over the downgrade may do more to harm S&P’s reputation than the U.S.’s. But we’ll have to wait to see how the drama unfolds next week.
A Deeper Look at Gold: Gold and Silver Are Firing On All Cylinders.
Now, for our analysis of the 15 reasons markets moved this week:
1) Debt ceiling. Last night President Obama announced that negotiators from both parties and both chambers of Congress had reached a compromise on a debt proposal. But as leaders try to sell the deal to their peers, it’s looking like it might be a close vote. The House is currently hearing from both the bill’s supporters and its opposition, which comes in the form of both liberal and conservative representatives. Polls showed that most Americans wanted a deal that placed some of the burden of balancing the budget on taxes, if only on the wealthy, rather than focusing solely on spending cuts as the deal does. All of that leads to a less than optimistic turnout at the markets despite what should have been a huge sigh of relief.
2) Manufacturing. While news of a likely debt ceiling solution might have given markets a boost in the absence of any truly negative data, we’ll never know, as the ISM Manufacturing Report released before the markets opened today showed that growth in the sector slowed to a snail’s pace in July, not just in the U.S. but globally.
3) Healthcare. Taking a huge beating today were healthcare stocks, down on fears that cuts to Medicare would reduce revenue for everything from drug companies like Pfizer (NYSE:PFE) to healthcare providers like Humana (NYSE:HUM). Healthcare stocks (NYSE:XLV) were down across the board, despite many positive earnings reports last week. Keep your eye on these top healthcare stocks as the debt deal unfolds: Johnson & Johnson (NYSE:JNJ), Pfizer Inc. (NYSE:PFE), Bristol Myers Squibb Co. (NYSE:BMY), GlaxoSmithKline plc (NYSE:GSK), Sanofi-Aventis SA (NYSE:SNY), Eli Lilly & Co. (NYSE:LLY), Abbott Laboratories (NYSE:ABT), Teva Pharmaceutical Industries Ltd (NASDAQ:TEVA), and Novartis AG (NYSE:NVS).
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.
1) Job cuts. Markets took a beating this morning after it was announced that planned job cuts in the U.S. climbed 59% year-over-year in July, and 60% over June’s figures. Projections have Friday’s Labor Department report on the state of job growth in the U.S. showing 85,000 more payrolls in June, a figure only good enough to maintain June’s 9.2% rate of unemployment. If the number reported Friday falls short of expectations, population growth may again exceed job growth, and the rate of unemployment could rise.
2) ISM service-sector report. Monday’s ISM manufacturing report contributed to market losses on Monday, but today’s report, though equally negative, didn’t quite have the same effect as markets began to level out this afternoon. The ISM service-sector index declined to 52.7% in July. The U.S. service sector accounts for three-fourths of all economic activity, and employs four out of every five U.S. workers, so a 0.5% decline speaks volumes about the state of economic recovery. However, ultimately the news seems to have had little effect on the already depressed markets, which began to rally in the afternoon to finish the day with gains.
3) Tech. All three major indices closed the day up, in large part thanks to tech stocks. Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), Intel (NASDAQ:INTC), IBM (NYSE:IBM), and Microsoft (NASDAQ:MSFT) led tech gains today, with Intel one of the Dow’s best performers, helping push the index positive in the last hour of trading so that, despite a negative economic outlook, the markets finally got their day in the sun after the shadow of the debt ceiling finally passed.
1) Japan and Europe. Both Japan and Switzerland made moves to tame their skyrocketing currencies, which devalued the safe-havens against a host of other currencies, including the U.S. dollar. Then the European Central Bank decided to re-enter the bond market and started buying up bonds, but not the Spanish and Italian bonds that are at the center of the current sovereign debt crisis. Investors became acutely aware today that, while the U.S. sovereign debt crisis is over, it’s still very real in Europe. Furthermore, many once-thriving economies like Japan are now in the depths of a recession. Even Chinese markets closed down Thursday.
2) Unemployment. Initial jobless claims last week fell slightly to 400,000, but have been unable to break lower in 17 consecutive weeks. For the unemployment rate to decrease and the country to enjoy sustainable job growth, initial jobless claims need to stay below 400,000 for a significant amount of time. The slowing improvement in the job market has Americans worried about the state of the economy, and now with the debt deal, unemployment benefits could be at risk. Americans are still awaiting Friday’s official jobs report to see how many jobs the economy created last month, and most accounts have the rate of growth just enough to keep the unemployment rate steady at 9.2%, but the report could disappoint and push the unemployment rate still higher.
3) Capital goods. With the Pentagon facing huge budget cuts in 2012, the part of the capital goods sector catering to high profile defense contracts could be looking at billions of dollars in lost revenue. All of the major aerospace and defense stocks (NYSE:PPA) have been falling off today, including Honeywell (NYSE:HON), Boeing (NYSE:BA), Lockheed Martin (NYSE:LMT), and United Technologies Corp. (NYSE:UTX).
1) Jobs report. This morning’s Labor Department report showed the U.S. economy adding 117,000 jobs in July, well above projections of 75,000 and enough to push down the unemployment rate from 9.2% to 9.1%. The report follows yesterday’s news that initial unemployment claims in the last week of July fell to 400,000, continuing a downward trend. However, the news proved unable to prop up the markets, which quickly began to sell-off.
2) Italy. The euro gained on news that Italy will speed up its fiscal reform consolidation program, which will include a balanced budget rule, and the Dow followed, rising as high as 1.01% in a mid-day rally. Furthermore, the European Central Bank agreed to buy Italian debt if the country’s government could expedite the institution of its reform program, and reports have the ECB potentially buying Spanish bonds as well. The news takes a lot of pressure off the two largest at-risk economies in the euro zone.
3) Uncertainty. It certainly has been a volatile day of trading, with markets starting high, falling quickly, then reversing a few more times to end the day relatively flat. With big earners like Kraft (NYSE:KFT) and Procter & Gamble (NYSE:PG) propping up the Dow while financials like Bank of America (NYSE:BAC) and JPMorgan (NYSE:JPM) pulled back, the markets continually flip-flopped faster than you can say ‘recession’. It was as if investors were uncertain as to how to interpret the day’s economic news, or maybe it was just that they began focusing on the individual merits of different stocks rather than the broader economic data that so often turns out to be misleading.