What's ahead for the stock market
The coming week will start with market reaction to the US debt downgrade. The Federal Reserve meets Tuesday. Disney and Cisco Systems top the earnings reports, along with Molycorp and retailers Macy's, Nordstrom and Kohl's.
This past week wasn't a lot of fun for investors, not with the stock market's dreadful performance.
The week ahead looks to be volatile in large part because Standard & Poor's downgraded U.S. debt late Friday to AA+ from the AAA credit rating the U.S. has held for 70 years. The move came as markets were closed for the weekend.
There's also a big Federal Reserve meeting on Tuesday. And there are more earnings to digest, including reports from Walt Disney (DIS), Cisco Systems (CSCO), Macy's (M), Nordstrom (JWN) and rare-earth-mineral producer Molycorp (MCP).
The market gained some support when the Standard & Poor's 500 Index ($INX) hit an important technical level on Friday and held. That may carry over to next week.
Plus, the market appears so aggressively sold off that a big bounce-back rally may be getting ready to erupt.
Article continues below.
Why S&P downgraded US debt
What's not clear at all is how financial markets will react to Standard & Poor's rating cut come Monday. The Federal Reserve said late Friday that the decision won't affect its operations.
The earliest indication will come Sunday evening when futures trading reopens, along with Asian markets. The current betting is that the downgrade, which includes debt of the Federal Reserve, has already been factored into many investors' decision making. Indeed, the 10-year Treasury yield dropped during the week from 2.805% to 2.558% by Friday.
In theory, however, the downgrade should boost interest rates, although probably not by very much. It may push the dollar and some stocks lower. Stocks of big exporters should actually benefit from a lower dollar.
The rating agency acted in part because it said it would in April. The agency wanted the government to reduce the federal debt by at least $4 trillion over the next decade. Earlier this week, Congress instead passed a plan to reduce the debt by at least $2.1 trillion.
At the same time, S&P said it was deeply concerned about the polarization in Washington.
The downgrade "reflects our view that the effectiveness, stability and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned," S&P said in a news release.
The debt-ceiling fight made S&P "pessimistic about the capacity of Congress and the administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon."
Moody’s Investors Service and Fitch Ratings have said they have no immediate plan to downgrade the country’s credit rating, giving the government more time to make progress on debt reduction.
Before the ratings cut, an ugly week
The losses the stock market absorbed last week were stunning. The Dow Jones industrials ($INDU) fell 5.8%, with the S&P 500 off 7.2% and the Nasdaq Composite Index ($COMPX) off 8.1%. The losses wiped out the market's gains for the year. The Dow is off 1.2%, with the S&P 500 down 4.6% and the Nasdaq off 4.5%.
The Dow's loss for the week was its worst in percentage terms since the week of March 9, 2009, just before the market bottom. The 698 points the blue chips gave up were the most since the week of Oct. 6, 2008 -- during the worst of the 2008 market crash.
But a little perspective is in order.
The point loss is a bit less than 40% of the 1,874 points the blue chips lost in that awful week of Oct. 6, 2008.
The percentage loss is the 79th-worst since 1928. The worst was that October 2008 loss, followed by a 15.6% loss in the summer of 1933 and the 14.3% loss in the week after the Sept. 11, 2001, terror attacks.
|Markets for the week|
|8/5/2011||7/29/2011||% chg.||YTD chg.|
|U.S. Dollar Index||75.04||74.04||1.36%||-5.70%|
There are three good reasons to see a sizable rally soon, perhaps as early as next week.
- The size of this past week's sell was so big it will cause some traders and their computers to nibble. Moreover, S&P's ratings cut on U.S. debt was expected.
- The S&P 500 hit its 200-week moving average on Friday and held. That's a powerful long-run support level.
- The major indexes are now trading at 6% below their 200-day moving averages. The big 2010 rally started after that gap hit 6%. And the rally had, as a trigger, a discussion from the Federal Reserve that it might start what's now known as Quantitative Easing II, or QE2, a program to buy $600 billion of Treasury securities to give the economy a floor.
The Fed's rate-making body, the Federal Open Market Committee, meets Tuesday, and it's not hard to see the Fed and Chairman Ben Bernanke discussing how it might respond to increasing evidence that the economy is softening considerably.
The Fed will release a statement on any decisions it's made on Tuesday morning, and Bernanke will hold a news conference in the afternoon.
Fed officials are probably thinking about how to react. Three former governors told The Wall Street Journal this week that they think the central bank may have to act in part because no one else in Washington wants to. Especially the Republican-controlled House of Representatives.
Elsewhere in the economy
The Fed meeting is the week's big event. Other reports include:
Productivity and unit labor costs, due Tuesday from the Labor Department. The report will show that productivity declined in the second quarter, and possibly in the first quarter as well, ISH Global Insight predicts.
The weekly report on mortgage applications, due Wednesday from the Mortgage Bankers Association.
The weekly report on crude oil inventories, due Wednesday from the Energy Department.
Initial jobless claims, due Thursday from the Labor Department.
Retail sales for July, due Friday from the Commerce Department. This report may well show a gain because of better-than-expected July auto sales.
University of Michigan Consumer Sentiment Index. Expect a decline. Especially given the ferociousness of the debt-ceiling fight, weak economic reports this past week and the weak stock market.
Another big week for earnings
The earnings season is starting to wind down. Only two Dow components report in the week ahead: Walt Disney, after Tuesday's close, and Cisco Systems after Wednesday's bell.
This is the week when big retailers start to report results as well. Those reports will continue over the next few weeks. Here's a rundown.
Monday: Carmike Cinemas (CKEC), Coeur d'Alene Mines (CDE), Dollar Thrifty Automotive (DTG). Coeur d'Alene Mines is one of the biggest silver producers.
Tuesday: Semiconductor maker Cree (CREE), InterContinental Hotels (IHG) and Disney. Disney will command the most attention because its big interests in broadcasting offer an insight into advertising, and its theme parks offer a view of consumer confidence.
Wednesday: Cisco Systems, drug-maker GlaxoSmithKline (GSK) and Macy's. Cisco's challenge is to convince investors that it has more of a future than simply job cuts.
Thursday: Nordstrom, chipmaker NVidia (NVDA), discount retailer Kohl's (KSS) and Molycorp. Molycorp, which has been building a big mine in California to mine rare earths, materials used in a variety of industrial applications, went public at $12.85 in July 2010 and rose 503% to $77.54 in early May. It has fallen back 30.2% to $54.15.
Friday: JC Penney (JCP) and Brazilian oil giant Petrobras (PBR).
S&P credit rating is more than fair. Had it been me, I would down grade the credit to BB+. You might wonder why. We do not have the means to repay our debt. Our infrastructure is in shambles. We do not produce enough goods in the US to satisfy the need of US consumers (customers). We have some mineral deposits but only serves as a reserve. We manage our tax money very poorly. We do not tax appropriately to balance the budget. We spend money on unnecessary projects. We argue more than we do things constructively. We do not follow our own economics innovations which we teach the world.
I will hold out from stock market until the US structures its stock market where investment is really investment not speculative trade.
Cant tell which way Wall Street will head Monday...
What I do expect to hear...
some fuzzy math numbers on how great the USA is doing, and
that same old worn out message...We are on the right path....?
Then we will hear the ...BLAME GAME...being played to the hilt...
In a way, we are all at fault for our problems...mainly for not voting the
crooks, and Politian's who are on the take, OUT of Washington...
...Hope there are a Record number of voters next election..
and that voters take time to learn about the people and past history of who they are
Do not let these dummies in Washington get re-elected. They made their intentions well known these past couple of weeks and they are doing more harm than good. Time to get some new ideas in the shop and ship out everyone up there.
You know what's a real shame is you folks that say "its the republican fault" or no "its the dems fault".
When will it dawn on you guys they are two heads on the same beast.... When this country goes down and I truly believe it is headed that way. That last word heard was its there fault... Also those folks that get ss or Medicare now there being told that's A entitlement, really? that's something most have paid into 30,40,50 years
Why isn't ss listed as to big to fell? Another question when the money was being shoveled out the government told us were not giving this money to them were investing, well make money back from them. well were is the money?
All- The AA+ Downgrade should come as no surprise to any of the financially enlightened. This is the result of a cake that's been baking / growing ever larger over the last 30 + years. There were many bakers involved / past / present / who knowingly / willingly allowed it to grow out of control.
Years ago we became the teenage girl at the mall / while the credit card still worked / we charged it. Instead of showing even a glimmer of fiscal restraint / we allowed the Fed government to try to be everything for everybody / an Agency for everything / a brand new program for whatever ailed us.
No more / it's official / we're now in the fiscal dog house. The irony of S & P being the delivery boy on / for this message isn't lost on me. I've seen it the last 2+ years / time / again / auditors' / examiners' / regulators' marching orders: ask more questions / downgrade if the story makes no sense.
Yes Standard & Poor's / the brainy / grifty / shifty guys who helped bring us the MBS screw up / who greatly assisted us in / contributed to cratering the RES RE market to this day / as the delivery boy / is a poor one to judge us / anyone. In their prior actions / their judgment was obviously fatally flawed.
In life, we're required to make like vs. want vs. need decisions daily. There's just so much $ to go around / we must decide what's truly important / prioritize. If we stupidly choose everything / decide poorly / there's a painful fix for that too / we can answer probing Bankruptcy Trustees' questions.
It's ego-driven too. We self-anointed ones / fiscally all-knowing / all-seeing world cop / savior / didn't get it / while we kept running up our tab / that before we could save the World / we'd need to save ourselves / from ourselves. We've failed to do that / our rating / Reserve Currency status is in limbo.
The inability of some Pols to even contemplate revisions in our fiscal house that would create additional revenue / while perversely of interest to me / IMHO is like the guy who holds his hand out in front of his face, saying to the guy holding the shovel, standing in front of him: "here, hit my hand."
I've said it before / too much ineffective / inefficient / duplicative Regs / Agencies / too much pork / waste. This is a "gut check" moment in time. Our Pols will either now suck it up / carefully examine what each Agency / program / Reg does / doesn't do / pare back this one / totally jettison that one.
Or they can continue to do little / nothing / we can continue doing business as usual / extend our slide down that slippery slope to fiscal oblivion. We'll soon know whether / not most of our Pols truly are devoid of character / substance / the hedonistic / gutless / soulless weasels I think they are.
For guys who frequently suggest "my way or the highway" / "f**k 'em / feed 'em fish" approaches / no compromise / no cooperation / no surrender / good luck on that. IMO there must be middle ground between draconian spending cuts that'd stop our economic engine / drunken sailor spending.
The guy who still only blames lefties / indies / righties for the AA+ Downgrade is completely polar in his thinking / has the blinders on / drinks his b**g water. Let's try to pull together / let our voices be heard / our needs be known to our Pols. Or we can post here / bi*ch about it / hope it'll get better.
Be safe out there. Try to play nice with others here. Keep posting! You have a good weekend.
Here's the kitchen sink
Even our legislature has decided that congress has become to bloated to make any fair and impartial decisions about how to handle our debt crises. They've decided that we need to form a super committee of 12 in order to make the decisions necessary to solve our problems, trim 3 trillion from the budget in the next ten years, and get America back to work. What are we paying 435 congressmen for? We need to go even farther to resolve our problems.
How about these figures?
There are 435 congressmen with an average salary of $185,000 and an average salary for staff for each one of $2,000,000 and the majority of them are republican. If they reduced the number of congressmen to 100 democrats and 100 republicans that would be a savings of $43,240,000 annually just for what the congressmen are being paid. You would have an additional savings of $490,000,000 for what they are paying their staff for an annual savings of $533,240,000. That would be over a 2 trillion dollar cost cut in a 4 year period. Think about it. $2,132,960,000 saved in 4 years. In a ten year period you would have 5,332,400,000 dollars in savings. Cost is 235 congressmen and their staff lose jobs. No cuts to medicaid or medicare which might cost thousands of jobs. No tax increases so companies can afford to put more people back to work. A balanced congress that might actually get something done and more than 5 trillion dollars saved in a ten year period.
FYI - The number of congressional members was not set or guaranteed by the US constitution. It was increased by congress to 435 members in 1911 and made into law. Laws can be changed when they are deemed to be outdated.
GOP WANTS ALL BUT WEALTHY TO PAY
Based on their budget proposals, Republicans in Congress want everyone to pay more, except the very wealthy.
They want college students to pay thousands of dollars more in interest on their student loans.
They want commuters to pay more for riding on Amtrak.
They want to raise the retirement age, so people who've paid into SS all their lives, will pay even more and get far less in return.
They want people on Medicare to pay more out of pocket for healthcare and get less in return.
They want to repeal credit card reform, forcing people to pay more in interest rates, fees and penalties on their credit cards.
They want to repeal healthcare reform, so people with pre-existing health conditions will pay more out of pocket expenses or go without healthcare altogether.
But they want the wealthiest 2%, whose income is rising faster and whose taxes have dropped far more than the rest of us, to continue getting special tax breaks, subsidies and bailouts, so they won't pay one extra penny in taxes.
They even want to eliminate the capital gains tax, so the idle rich, the millionaires and billionaires who live off their investment income and do nothing to create jobs, will pay no income taxes whatsoever.
Republicans have proven that they don't work on behalf of average Americans. They work to benefit the super rich and the powerful corporations who contribute millions to their political campaigns. They take bribes from the super rich, in exchange for enacting laws and policies that benefit them and their cronies, but no one else. This is pure tyranny! Impeach and incarcerate all the corrupted tyrants now and by any means.
God bless and help America!
Gonna drop good Monday morning.
And still after seeing oil drop $10-$12 a barrel they haven't dropped 1 cent off the price. I remember when it went up a few dollar a barrel a couple of weeks ago they couldn't raise the price fast enough. Its been a week and no price drop. Whats up with that? Other than ripping off the already ripped off consumers.
1) Declare open season on Ben Bernanke. The Fed and this Wall Street butt plug
have to go. Put these maggots on unemployment.
2) Have a "slap a speculator" week.
3) Gasoline prices plummet on continued low demand (forget about Libya already)
and there is plenty of supply. At the prices we are paying at the pump, have you ever found
that there is no gas at you local fuel stop?
4) How about a "punch a politician" day? Make these scum feel uneasy walking the streets!
5) The American people put aside their "bi-partisan" bickering and finger pointing and finally unite.
All problems solved!
Welcome to the circus
We have roller coasters
Stocks rally in the mornings with plenty of false starts and crash in the evenings.
We have magicians
Lots of smoke and mirrors, 117,000 jobs added and 120,000 people entering the job force with 66,000 people laid off in July but unemployment numbers are going down? Sounds like someone is blowing a lot of smoke up everyone's a$$ to me.
And at center stage we have a new act
The pan-euro, an international euro being pushed by Italy that is backed by the previous euro which has no real value because it is failing.
Have we gotten the picture yet?
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[BRIEFING.COM] S&P futures vs fair value: -3.30. Nasdaq futures vs fair value: -9.80. A lack of buying interest at the moment has the futures market on the defensive and signalling a slightly lower start for the cash market after last week's 2.1% advance in the S&P 500. There has been a smattering of M&A activity this morning, yet the expectation that there could be some early profit taking has kept a lid on the market's enthusiasm. Separately, a lot of attention is ... More
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