Another week of drama: Health care decision, Europe
The Supreme Court is expected to issue its decision on health care reform. Research In Motion, Nike will dominate earnings. A European summit could get volatile. Economic reports at home could show more softness.
It wasn't a great week for stocks, but given the week's drama -- a Greek election, a Federal Reserve meeting and its nasty aftermath on Thursday -- it could have been worse.
Expect another week of drama -- a lot of drama -- starting perhaps as early as Monday when the Supreme Court may issue its ruling on the Healthcare Reform Act, otherwise known as Obamacare.
There are two earnings reports of importance: Nike (NKE) and Research In Motion (RIMM). The BlackBerry maker's stock price fell below $10 on Friday for the first since since 2003 as investors are signaling the company is in crisis.
And there will be important reports on the economy, personal income and housing.
Monday is shaping up as a weak day. Futures trading in the Dow Jones industrials ($INDU) and the Standard & Poor's 500 Index ($INX) are signalling U.S. stocks will open lower.
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At the same time, there was concern about how auctions of government securities in Spain and Italy will fare. European stock futures and Asian shares were lower while the euro dropped toward a two-week low.
Corn and soybean futures rallied on concern dry weather will cut supply.
A volatile week ends with a lower market.
The Supreme Court decision and the rest of the drama will come after a week in which the Dow fell 1%. The S&P 500 was off 0.7%. The Nasdaq Composite Index ($COMPX) actually finished higher, with a 0.7% gain.
It was a volatile week, especially on Thursday when the Dow fell 251 points in a delayed reaction to the Federal Reserve's decision to adjust a program to sell short-term securities and buy longer-term bonds to keep long-term rates low.
But the Fed's real message was that it is very concerned about the deteriorating economic situation in Europe and its effect on the United States. Policy makers cut their own forecasts for the next several years and conceded that they -- and everyone else -- were probably too optimistic earlier in the year when a warm winter caused a lot of economic activity that might have been delayed until spring.
The stock market slumped badly on Thursday. Many traders had been hoping the Fed would do much more than it did, even if Chairman Ben Bernanke insisted the central bank had made a substantive decision. But Bernanke did say the Fed would do much more -- presumably another big round of purchases of federal bonds -- if conditions really get scary.
But there were other issues at work: worry about a Moody's downgrade of global banks and a Goldman Sachs call to short the entire S&P 500.
There were other effects of the Fed decision.
Gold (-GC) and other commodities moved lower. Crude oil (-CL) closed the week below $80 a barrel for the first time since October, and the national average price of gasoline fell below $3.50 a gallon for the first time since Feb. 11 and ended Friday at $3.454 a gallon. That's down 12.3% from the April peak of $3.936 a gallon and down 4.9% from a year ago.
And there was plenty of criticism: that the Fed was reckless and risks setting off a new round of inflation and that the Fed has offered too little aid to the economy in the last few years because officials are afraid to offend the Republicans in Congress.
|Markets for the week|
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|U.S. Dollar Index||82.44||81.97||0.58%||2.38%|
The health care decision is coming
The decision, assuming it comes, will be combed carefully. (The New York Times suggested it may be delayed until Wednesday or Thursday.)
If law is overturned, it's likely to be by a 5-to-4 margin, with most Supreme Court watchers believing Justice Anthony Kennedy will be the deciding vote. (Because of that belief, he already has made the cover of Time magazine.)
The dissents will be closely examined because they may provide a roadmap on how to make the world's most expensive -- and chaotic -- health care system more efficient and accessible to more people
The betting, at least on the basis of three days of oral arguments in March, is that some or all of the law could be struck down. The big winners would be managed-care companies and medical-information companies. Hospital operators would probably be losers.
Health care stocks were the best-performing sector of the stock market in the past week. The sector has been a source of strength in a difficult quarter. The S&P 500 is off 5.2% so far this quarter. The Healthcare Select SPDR (XLV) exchange-traded fund, which tracks the health care sector of the index, is off 0.52%, third-best among the 10 S&P 500 sectors.
But the fact is there has not been exuberant investing in health care stocks. They were up an average 10.5% for the year through March 28. They're down an average 1.1% since.
And the winners are not because of the pending decision.
Edwards Lifesciences (EW), which makes heart valves and other devices for patients with cardiac problems, is up 44% for the year and 39.1% since March. But most of the gain resulted from a June 13 recommendation for the Food and Drug Administration to approve a new valve product.
- For more on the possible outcomes of the decision, check "The Obamacare Ruling: 5 Investing Scenarios."
Most of the attention on Europe will be paid to the European Summit on Thursday and Friday.
Germany, France, Italy and Spain agreed Friday that the eurozone needs to establish a $156 billion package that helps finance growth in the region.
But German Chancellor Angela Merkel resisted pressure for common eurozone bonds or a more flexible use of Europe's rescue funds. She wants more fiscal discipline among the eurozone countries, something France has been reluctant to endorse.
That probably kept Friday's stock market rally in check, and it could weigh on markets as the week rolls on. There is a big fight brewing between Merkel and the new French president, Francois Hollande. A loud, ugly fight would hurt global markets.
A warning from the central bankers
On Sunday, the Bank for International Settlements, an organization that serves as an umbrella for the world’s largest central banks, called on euro zone countries to insure bank deposits and take other measures to prevent a banking collapse so that the European debt crisis does not undermine the global economy.
In its annual report, the BIS said central banks can't cope with the euro zone crisis alone. They are nearing the limits of their resources, and it is time for policy makers to act.
"Central banks are being cornered into prolonging monetary stimulus, as governments drag their feet and adjustment is delayed," the organization said. "It would be a mistake to think that central bankers can use their balance sheets to solve every economic and financial problem."
The report warned that bank deposits were already flowing out of countries perceived as vulnerable. By May, Greek banks had already lost about a third of their foreign deposits and one-quarter of domestic deposits, and the outflow seemed to be accelerating.
Money is also flowing out of Ireland, Italy, Portugal and Spain and into banks in Germany and the Netherlands because depositors believe there's more safety, The New York Times said.
Nike and Research In Motion top the earnings reports
After Thursday's close come two important reports.
Nike is expected to cheer investors with earnings of $1.37 per share for the fiscal fourth quarter, up 10.5% from a year ago. Revenue is expected to grow 13.1% to $6.52 billion.
Here's what to watch: the order book. Nike also includes an estimate of orders for the next few months. Listen to see if Europe is affecting sales. One analyst believes the European business is still quite strong, the Portland Business Journal noted Friday. Sterne Agee's Sam Poser said in a client note that athletic footwear and apparel brands and retailers are actually growing in Western Europe.
Research In Motion is a different and sadder story. The company expects to report a loss for its fiscal first quarter. It has promised to explore strategic alternatives, which would mean a sale.
The consensus estimate is still for a penny a share in earnings, down from $1.33 a year ago, with a 35.8% decline in revenue to $3.15 billion. And the questions at the conference call will surely be on survivability.
Also reporting next week: for-profit college operator Apollo Group (APOL) on Monday; drugstore chain Walgreen (WAG) on Tuesday; food processor General Mills (GIS) and homebuilder Lennar (LEN) on Wednesday; Family Dollar (FDO), office-furniture-maker Herman Miller (MLHR) and gun-maker Smith & Wesson (SWHC) on Thursday and Constellation Brands (STZ) and builder KB Home (KBH) on Friday.
The second quarter ends on Friday.
The economic reports: A last revision for GDP
Reports this past week (and in weeks before that) suggested the economy has slowed down from a quick start in the first quarter. This week's reports will probably confirm that.
There may be some cheer from housing. Nomura Securities is expecting May new-home sales to rise 4% in May to 375,000 units. That will undo some of the gloom from Thursday's existing-home sales report for May, which said sales on analyzed basis were off 1.5% from April.
Here's another bit of cheer: We're far enough along in the year that unadjusted sales (that is actual sales) were up slightly in May.
But the rest of the week may not be so cheery.
Case-Shiller Home Price Index, due Tuesday from Standard & Poor's. Look for a small year-over-year decline. But the rate of decline is slowing rapidly.
The Conference Board's Consumer Confidence Index, due Tuesday. This will probably decline. The index is closely attuned with the stock market.
Durable-goods orders, due Wednesday. Slowing European growth will depress orders.
Gross domestic product: a final revision for the first quarter, due Thursday. Analysts expect growth at an annualized 1.7%, down from 3% in the fourth quarter of 2011.
Personal income, due Friday. Look for a small gain in income and in spending.
Chicago Purchasing Managers Index, due Friday. Nomura Securities sees the index falling to 51.2 in June from May's 52.7. But a reading above 50 means the economy is still growing.
University of Michigan consumer sentiment index, due Friday. Expect a big decline thanks to the stock market's woes.
Non-profit corporations are the only way to go, unless, or course, you want socialism. Anyone? No? Didn't think so.
The private health care system is preserved. The 7 out of 8 dollars currently spent on market research become 8 out of 8 for medical research. You'll know what the for-profit companies are trying to sell you are cosmetics, elective surgeries, or snake oil. Comptetition will be for charitable donations, & can only be won by curing the sick, healing the injured, & improving our qualilty of life.
Or we could unionize every single working person in the U.S. Let powerful union bosses fight it out with the HMOs & insurance companies. But some people go nuts when they encounter the "U" word, so it probably won't work.
Just a few common sense quotes by Thomas Jefferson that should apply today:
"I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them."
"To compel a man to furnish contributions of money for the propagation of opinions which he disbelieves and abhors is sinful and tyrannical."
It seems noone has an alternative to my earlier post, so I'll suggest one. How about unions? Under the current system the small businessman or individual goes to the insurance company or HMO CEO to complain about cost & quality. Naturally the CEO tells the complainant to take his handfull of subscribers & go to.. uh, a very warm afterlife. Since the CEO is in charge of this guy,s health care, he can actually expedite the trip! What a great system!
However, if a union boss shows up to complain it's a different situation. He represents thousands of small businesses & hundreds of thousands (maybe millions) of subscribers, all of whom can be moved to another carrier at the click of a mouse. Will Mr. CEO be more sympathetic to the union boss? What do you think?
It's so obvious I don't understand why I have to be the one to point it out. Some things should never, ever be operated on a for profit basis. For example: orphanages, justice, politics, religion, the U.S. Marine Corps, (how may can you name?), & our health care.
Take the companies providing life saving (repeat, life saving) medecines, equipment, & services & give them 90 days to reorganize as non-profits. Those that don't are charged with extortion by threat of bodily injury or death. The private health care system is preserved (Look Ma, no socialism), & so is competition, for charitable donations. The only way to come out ahead in that competition is by curing the sick, healing the injured , & improving the quality of everyone's life.
In order to qualify for charitable donations, the companies will have to minimize their administrative costs. I've never quite understood how the board chairman's new yacht, private jet, or 7th mansion benefits our health anyway. Just paying the health care professionals will mean a substantial reduction in costs, & of course I want the professionals paid. You'll notice I mentioned leaving out the profit motive for politics & religion, but omitted sex.
If the profit margins I've read are accurate, the costs should drop to about 1/7 of what they are now. (Can that be right?) So the pros get a raise, & our premiums drop so low a combination of charitable donations & governement contrubutions (like medicaid) should easliy pick up the indigent wihout raising our taxes. Might even see a tax reductio if the current system is really pulling in 7 times more than it spends. Maybe that's just the pharmaceutical companies.
wondering what wonderful country "julius" below hails from that he can critisize the USA...and our pets
perhaps our cats eat better than julius?
Trying to sum up the debacle known as the market may be similiar to the old adage wish in one hand and crap in the other. Only these clowns could sell you a pile of crap and make you think it is gold. Rummy or Oblama, not a dimes bit of diff between the two.
Kinda reminds me of the foxes and hyenas gaurding your children.
Have a nice day.
What is the biggest difference between the Democrats and the Republicants? The Democrats want to tax and spend, whereas the Republicans only want to spend lots of other peoples money making their buddies rich!!!
The best chance to enjoy somewhat better fiscal responsibility in 2013 and beyond is to vote Democrat in the Fall elections, as that way the GW tax cuts will end and then we will have some more dough to spend OR use to reduce the deficit too!
mg - you really need to take a remedial math class and some basic econ 101 - you propose only the ruination of America and continue to show us your ***. on obama, you obviously either miss the concept of "polls" or watch no unbiased media whatsoever.
amval - the pres suggests and pressures much of the spending, starts expensive wars, and clinton could have vetoed the massive welfare cuts instead of signing the bill. take your own pompous advice and take a civics 101 or poli-sci course on gov. - and extricate your head from ..
tumbles - they all vote party line so your idea is useless. all we can do is crush them with an avalanche of non-lob byist controlled new members.
r-t - right with you on most stuff - but you need to accept that politics and investing are now inextricable intertwined ever since the TP almost drove the US into de-facto national default in 2011 by holding Ammerica h ostage. get used to it. these TP croutons cannot pass any bills or govern the US since they have pl edged away their ability to g overn the country. this fiscal cliff will impact investments more than you can imagine - and these n ut-jobs are not done yet.
lol - flounder returns ....
Miragolinsky, High Commander of the USSR, we know for a fact that Obama is the most conservative President we,ve had in 60 years, government spending is only growing at 1.4% annually, so what is causing our deficit to be so high, even thou Bush is gone His massive spending programs have not been paid for, lets look at Republican unfunded spending.
Iraq, Afghan wars - $1.469 trillion never paid for
Bush tax cuts for millionaires - $1.812 trillion never paid for
Extra Discretionary Spending - $608 Billion never paid for
TARP - $224 Billion never paid for
Medicare D $180 Billion never paid for
Stimulus package $773 Billion never paid for
Home Land Security $60 Billion per year
No Child left behind, more socialist programs
So after 8 years of the United States Socialist Republicans in charge ( USSR )
We over spent $5.07 trillion on Socialist programs, Entitlements and new government Agencies.
All these Socialist Republican programs are still in effect costing our nation hundreds of billions every year. The sins of the Fathers are past to the sons. Obama's projected spending for the next 8 years is $1.44 trillion, a drop in the bucket compared to the Socialist Republicans, stop the debt, stop the spending, Vote for a true Conservative Obama.
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[BRIEFING.COM] The S&P 500 ended this week with a bang, roaring to a new all-time high on the back of stronger-than-expected economic data, influential leadership, and an ongoing appreciation for the Fed's monetary policy support.
The bullish bias was evident in premarket action as the S&P futures pointed to a higher start without the benefit of any definitive news catalyst. Stocks indeed benefited from a blast of buying interest at the opening bell on this ... More
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