The Drudge Report headline says it all-it was a Bipolar Tuesday on Wall Street. The Dow swung in a 640-point range during the session to finish up 429.
Usually swings like this are caused by government intervention and today was no exception as The U.S. Federal Reserve signaled it plans to keep its benchmark short-term interest rate close to zero for at least another two years as it sharply downgraded its view of the U.S. economy.
The Two-Year Treasury Note fell to a record low yield of 0.177% today.
Here are the top financial stories of the day:
1) Wall Street roars back in wild trade after Fed meet-From Reuters
Stocks rallied on Tuesday in a volatile session as investors struggled to decipher the Fed's signals on the economy after a dizzying two-week slide.
Buying accelerated into the close and the S&P 500 posted its best day in more than two years, following a drop of nearly 17 percent over the past weeks.
The market reversed direction six times after a Fed statement that pledged two more years of near-zero interest rates.
Bank shares roared back from recent losses with the KBW capital markets index up 6.7 percent.
"The last three or four weeks, the stock market has really discounted a mild recession," said Mohannad Aama, managing director at Beam Capital Management LLC in New York.
"Now after the Fed announcement, the market has to start factoring in what the response from the Fed and the government will be. There is still a small chance for a fiscal stimulus aimed at job creation. The FOMC statement today was positive for equities."
The Dow Jones industrial average gained 429.92 points, or 3.98 percent, to end at 11,239.77. The Standard & Poor's 500 Index rose 53.07 points, or 4.74 percent, to 1,172.53. The Nasdaq Composite Index added 124.83 points, or 5.29 percent, to 2,482.52.
About 16.4 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq -- more than twice the daily average so far this year of 7.75 billion.
Advancing stocks outnumbered declining ones on the NYSE by a ratio of almost 12 to 1, while on the Nasdaq, almost five stocks rose for every one that fell.
The three major U.S. stock indexes, though, are still in negative territory for the year, in spite of Tuesday's strong rally.
At its session low after the Fed statement, the S&P 500 came within a few points of entering a bear market -- or a 20 percent decline from its recent closing high set on April 29.
According to a Reuters poll, the United States faces one-in-four odds of slipping back into recession, though the economic outlook was seen as raising the likelihood of new Fed action.
Even some investors hoping for action from the Fed acknowledged the central bank's options appear to be limited because the current crisis is not liquidity-driven, as it was in 2008.
Equities suffered a massive drop on Monday, the first session since the United States lost its top-tier triple-A credit rating from Standard & Poor's. As a result of Monday's huge sell-off, the S&P 500 posted its worst one-day percentage loss since December 2008.
2) Fed Pledges Low Rates Through 2013-From The Wall Street Journal
The U.S. Federal Reserve signaled it plans to keep its benchmark short-term interest rate close to zero for at least another two years as it sharply downgraded its view of the U.S. economy.
In a statement after a one-day policy meeting, Fed officials said they expect the weak economy to warrant exceptionally low levels for the federal funds rate "at least through mid-2013." Seven voted in favor of this action, with three voting against.
Voting against the action were president from three regional Fed banks -- Richard Fisher of Dallas, Narayana Kocherlakota of Minneapolis and Charles Plosser of Philadelphia. The Fed statement said those officials "would have preferred to continue to describe economic conditions as likely to warrant exceptionally low levels for the federal funds rate for an extended period."
While not the bold step to buy more bonds that some in the markets were hoping for, the move may help keep borrowing rates low and drive investors into riskier assets like stocks. The Dow Jones Industrial Average was up in volatile trade Tuesday, after suffering its biggest one-day decline since the 2008 crisis on Monday.
Fed officials Tuesday also downgraded their assessment of the U.S. economy for the third time this year, saying that economic growth so far this year has been "considerably slower than the Committee had expected."
Anxiety about a new economic downturn has increased recently, after data showed the economy grew by less than 1.0% in the first half and the U.S. saw its top-notch debt ratings downgraded for the first time. That has put pressure on the Fed to act, but its options are limited because short-term interest rates are already close to zero and the most powerful tool it has left -- buying more securities -- runs the risk of causing too much inflation.
Fed officials discussed a range of policy tools to boost the economy, the statement said. Some analysts were expecting the central bank to say it expects its balance sheet to remain large for an extended period as well, but there was no time frame put on its continuing Treasury purchases.
Since 2008, the central bank has been telling markets it wouldn't raise short-term rates for an "extended period," meaning at least several more months. Extending that for at least another two years may help lift the economy.
3) U.S. Two-Year Note Yield Falls to Record as Fed Extends Low Interest Rates-From Bloomberg
Treasury two-year notes rose, pushing yields to a record low, after Federal Reserve officials said economic growth is “considerably slower” and the Treasury’s sale of $32 billion in three-year notes drew stronger-than-average demand in the first note sale since Standard & Poor’s cut the U.S. debt rating Aug. 5.
Yields on 10-year notes erased gains as policy makers left their target interest rate in a range of zero to 0.25 percent and pledged to keep it there through mid-2013. The Federal Open Market Committee discussed a range of policy tools to bolster the economy and said it is “prepared to employ these tools as appropriate,” it said in a statement today in Washington. The notes drew a yield of 0.50 percent, a record low at auction.
The bid-to-cover ratio, a gauge of demand was 3.29, compared with an average of 3.15 for the past 10 sales.
“It’s pretty amazing that the Fed will be exceptionally low until 2013,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors.
“They are telling you that we are in a stage of Japanese-like growth. The front end is rallying like crazy.”
Yields on two-year notes fell eight basis points, or 0.08 percentage point, to 0.18 percent at 2:34 p.m. in New York, according to Bloomberg Bond Trader prices. The 0.325 percent securities maturing in July 2013 rose 5/32, or $1.56 per $1,000 face amount, to 100 12/32.
Thirty-year bond yields rose six basis point to 3.71 percent. Benchmark 10-year yields fell two basis points to 2.30 percent.
Bid Pattern
The three-year note auction drew a yield of 0.50 percent, the lowest yield since records began in May 1981. It was less than the 0.523 percent average in a Bloomberg News survey of seven of the Fed’s primary dealers.
Indirect bidders, an investor class that includes foreign central banks, purchased 47.9 percent of the notes, the most since May 2010, compared with an average of 33.9 percent for the past 10 sales.
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 11.1 percent of the notes at the sale, compared with an average of 13.2 percent for the past 10 auctions.
At the July sale, the securities drew a yield of 0.67 percent.
The offering is the first of three note and bond auctions this week totaling $72 billion. The Treasury is scheduled to sell $24 billion in 10-year debt tomorrow and $16 billion of 30 year bonds on Aug. 11.
Market Surge
Treasuries surged yesterday as tumbling stock markets sparked demand for the safety of government debt. S&P cut the U.S. government’s AAA credit rating at the end of last week, while Moody’s Investors Service and Fitch Ratings have affirmed the U.S. at the top rating.
Volatility in the Treasury market has picked up. Merrill Lynch & Co.’s MOVE index, which measure price swings in Treasuries based on prices of over-the-counter options maturing in two to 30 years, rose yesterday to 117.8, the highest since Dec. 17, up from a 2011 low of 71.5 in May.
The 10-year note yields dropped earlier today to 2.27 percent, the lowest level since January 2009. The extra yield investors get for holding 30-year bonds instead of two-year notes was 3.41 percentage points, almost the narrowest on a closing basis since October 2010.
Treasuries have returned 6.2 percent this year, according to indexes complied by Bloomberg and the European Federation of Financial Analysts Societies. Japan’s government bonds have gained 1.3 percent, while German bunds have returned 4.8 percent, the indexes show.
Quote of the Day from Dave Ramsey.com:
Exert your talents, and distinguish yourself, and don't think of retiring from the world, until the world will be sorry that you retire. — Samuel Johnson
Tuesday, August 9, 2011
Monday, August 8, 2011
Financial Headline News for Monday 8/8
What can you say-what a disastrous day on Wall Street! Dow ends day down 633 points, closes at 10,811; S&P and Nasdaq down more than 6.7 percent.
The S&P downgrade could have an impact on all of us via interest rate hikes.
Gold rose an amazing 66 points today to set another all time record.
Here are the top financial stories of the day:
1) Dow Slides 5.5%, Ending Below 11000-From The Wall Street Journal
U.S. stocks tumbled in a Monday rout that sent the Dow Jones Industrial Average down 5.5%, plunging below 11000 for the first time since November, as investors fled from risky assets in the first trading session since Standard & Poor's downgraded the federal government's credit rating late Friday.
The Dow Jones Industrial Average sank 632 points at 10813, ending at the day's low, in preliminary closing figures at 4 p.m. Eastern time.
The Standard & Poor's 500 stock index tumbled 78 points, or 6.5%, to 1123, with financial and energy stocks falling hardest. The Nasdaq Composite slumped 168 points, or 6.6%, to 2364.
The Russell 2000 index of small-capitalization stocks was hit hardest, falling 63 points, or 8.9%, to 651. Small caps tend to make more exaggerated moves and are generally viewed as riskier than the widely held shares of large companies.
Investors' flight from risk was on full display Monday as S&P added downgrades of clearing bodies, entities such as Fannie Mae and Freddie Mac and lowered outlooks for companies including Warren Buffett's Berkshire Hathaway, following the Friday U.S. credit rating cut to double-A-plus from triple-A. Major stock indexes cascaded continually lower through Monday's session, much like they did during last Thursday's plunge, when the Dow lost nearly 513 points.
Gold futures soared above $1,720 an ounce for the first time as market partipicants scrambled after assets viewed as havens. One winner was U.S. Treasurys, which remained a haven for many investors despite the downgrade. Yield on the 10-year note fell to 2.3548% in recent action.
"Everybody is looking for whatever they perceive as a safe haven, even if it's just plain illogical," said David Kelly, chief market strategist for J.P. Morgan Funds. "Things are pretty dismal right now."
President Obama did little to assuage investor fears Monday afternoon as he said that the S&P downgrade should provide a "new sense of urgency" to tackle the deficit. Indexes hit fresh lows while the president spoke, and after.
"Everyone's running to the fiat currency, gold," said Dave Kavanagh, president of the Grant Park Fund in Chicago. "The market's telling [Washington] right now that we don't think that you can get your spending under control," he said.
The fact that Monday's stock-market swoon came right on the heels of the Dow's biggest weekly point loss since the financial crisis in 2008 set up many market participants for forced sales and margin calls, traders said. That made some of the losses self-perpetuating. It also raised the prospect of capitulation, the point when losses snowball and sentiment craters, helping markets find a bottom.
"There is a lot of forced liquidation," said Lorenzo Di Mattia, manager of Sibilla Global Fund, and such actions "might last another day perhaps."
Last week's swoon came as investors lost faith in European leaders' ability to stave off a debt crisis, and as fears grew that the economic slowdown would deepen into a recession. The losses sent the Dow down 5.8% and the broader S&P 500 to a 7.2% loss. The Nasdaq Composite fell 8.1% for the week. All three major U.S. stock indexes are in negative territory for 2011.
For some investors, worries about the strength of the global economy loomed just as large, if not larger, than the credit matters. Growth worries have reverberated through markets in recent weeks.
"The market is probably more concerned with the economic risk than with the S&P credit rating," said Bernie McDevitt, vice president of institutional trading at Cheevers & Co. Investors have "clearly decided we have further work to do [falling] lower."
The U.S. downgrade competed for investor attention with sovereign-debt headlines in Europe. European stocks erased early gains as the European Central Bank's pledge to buy sovereign bonds failed to restore investor confidence for long, with the Stoxx Europe 600 hitting a 15-month low.
Asian bourses were pummeled, with China's Shanghai Composite dropping nearly 4% to a 13-month low. The Group of 20 leading industrialized and developing nations statement that they were prepared to act in coordination to stabilize markets also failed to stem the selling tide.
Crude-oil futures slid below $82 a barrel amid worries about the economy.
The U.S. dollar fell against the yen, but moved higher versus the euro.
2) US debt downgrade could mean rate hikes for all-From the AP
Lawmakers weren't able to prevent the country from losing its coveted AAA debt rating.
Although the downgrade late Friday by Standard & Poor's was historic, it wasn't entirely unexpected. The three main credit agencies, which also include Moody's Investors Service and Fitch Ratings, had warned during the fight over the debt ceiling that if Congress did not cut spending far enough, the country faced a downgrade.
And just like a lower consumer credit score implies that a borrower is a less reliable, a lower credit rating for government bonds implies there is more risk involved in lending money to the government.
Prices for U.S. government debt rose in the first few hours of trading on Monday, a sign of increased demand despite the downgrade. But it is unclear what will happen in the long term, because of the unprecedented nature of the lower rating and the decisions by Moody's and Fitch to keep their highest ratings for now.
"If they all were saying exactly the same thing that would clearly have more impact than with a split rating," Alex Pollack, a fellow at the American Enterprise Institute in Washington.
If investors get skittish and Treasury prices reverse course, that could send the interest rate on Treasury bonds up. Essentially, the rate, or yield, would climb in order to make the bonds more attractive to investors.
That could lead to higher borrowing rates for consumers, because the rates on mortgages and other loans are often pegged to the yield on Treasury bonds.
Not every type of consumer borrowing has a direct tie to the government's credit rating, but there are potential ripple effects for individuals.
-- Mortgage and home equity loans
S&P's downgrade may have several implications for homeowners.
For starters, early Monday S&P downgraded the credit ratings of mortgage giants Fannie Mae and Freddie Mac, which are both backed by the U.S. government. That could mean higher mortgage rates for new borrowers. Freddie and Fannie together own or guarantee about half of all mortgages in the U.S.
Anyone hoping to buy a home in the near future likely has some time before they'll see rates climb. Still they should ask their bank or mortgage broker about the process for locking in a rate. Mortgage rates have been at historic lows in recent months, but fixed-rate mortgages are typically directly tied to the yield on 10-year Treasury bonds. Higher mortgage rates would follow any increase in the Treasury yield. But so far it appears that Treasury yields won't rise simply as a result of the downgrade.
Variable rate mortgages and home equity loans could become more expensive as well.
The high failure rate for adjustable rate mortgages during the housing meltdown means that today the number of new home loans with adjustable rates is minimal -- less than 5 percent of the market, according to Stephen Malpezzi, an economics professor at the University of Wisconsin Business School who follows the housing market.
What's less clear is how many older loans with adjustable rates remain out there, he said. With interest rates low in recent years, many homeowners who held adjustable rate mortgages have refinanced to fixed-rates.
For homeowners who still have ARMs, any potential change in their interest rates depends on whether their loan was linked to Treasury rates or some other benchmark, like the prime rate or federal funds rate.
Meanwhile, home equity loans, or HELOCs, are almost always variable rate loans and typically adjust more frequently than first mortgages, sometimes even monthly.
Homeowners with such loans could see shifts in their rates and payments while the markets absorb the downgrade.
One caveat is that many ARMs and most HELOCs are tied to the federal funds rate, which is set by the Federal Reserve, not to Treasuries. That should help insulate borrowers. The Fed, which meets Tuesday, has already said that it plans to keep rates low for "an extended period."
"The Fed is not likely to increase the federal funds rate anytime in the near future, especially if there's another problem with the economy as a result of the whole debt ceiling thing," said Gibran Nicholas, chairman of the Certified Mortgage Planning Specialist Institute.
-- Credit cards
Consumers across the country, who carry an average $4,950 on their credit cards according to TransUnion, will be relieved to know that any changes as a result of the downgrade won't be dramatic. And to the extent there are changes, certain protections are in place.
Most accounts with fixed rates were converted to variable rates in 2009 in response to the economic downturn and new regulations.
Banks don't publicize the rates they're charging current customers, but nearly 96 percent of the offers sent out for new cards in the first six months of this year carried variable rates, according to Mintel Compermedia, a market research firm.
Right now, banks are offering an average annual interest rate of 14.4 percent, according to Bankrate.com.
However, like HELOCs, most card rates rise and fall with the prime rate, which is pegged to the rate set by the Fed. That will help protect credit card users from the market's gyrations in the short term.
The good news is that even if market forces start sending card rates higher, current account balances will be protected from rate hikes under the credit card reforms passed in 2009. That means only new charges would be subject to higher rates. If rates rise several times over a period of months, card users could end up with multiple rates on various balances.
John Ulzheimer, president of consumer education for SmartCredit.com, noted that the law now requires banks to apply any payments above the minimum required to the highest rate balance. That's so those new balances may get paid off faster. But any scenario involving volatility could make for some confusing statements
3) Gold soars over $1,700 on debt fears-From Reuters
Gold surged more than 3 percent on Monday, surpassing $1,700 an ounce for the first time, after Standard & Poor's cut the top-notch AAA credit rating of the United States, setting off an investor stampede for safety.
In a rout reminiscent of the 2008 financial crisis, Wall Street plunged as much as 6 percent and other commodities collapsed as panicky investors sought refuge in bullion and U.S. Treasuries.
Analysts scrambled to revise up gold forecasts and gold volatility spiked as options traders put on bullish bets.
News on Sunday of a European Central Bank bond-buying program to help shore up Italian and Spanish debt proved too little to soothe global market fears of a double-dip recession, greater government intervention and further market turmoil, any of which could extend gold's 15 percent rally since June.
In the first session since S&P's downgrade, U.S. gold futures were headed for their biggest one-day gain since March 2009. Traders are now looking ahead to Tuesday's Federal Reserve's policy meeting, with growing expectations it may hint at an even longer period of ultra-easy monetary policy further.
"Investors are looking upon the ECB bond-buying as the first step toward the same kind of quantitative easing program the Fed is doing. So, gold acts as the only currency that you can't print more of, and you are seeing a huge institutional demand for it," said James Rife, an assistant portfolio manager at Haber Trilix Advisors, which manages $2 billion in assets.
Spot gold was up 3.1 percent at $1,714.09 an ounce by 2:39 PM EDT (1839 GMT), having hit a record $1,719.99 earlier and marking all-time highs against sterling and euros.
Adjusted for inflation, bullion is one of the few in the commodity complex trading below its adjusted all-time highs, estimated at around $2,500 an ounce.
JPMorgan (JPM.N) said on Monday it expects spot gold prices to climb to $2,500 an ounce or higher by year-end, on very high volatility, following the downgrade of U.S. debt. The U.S. bank said that its previous estimate of $1,800 was "too conservative.
The prospect of an even longer period of low U.S. interest rates prompted Goldman Sachs (GS.N) to raise its three-month forecast for the gold price by about $100.
Silver rose 1.9 percent to $39.03 an ounce.
The CBOE Gold ETF Volatility Index .GVZ, which is often referred to as the "Gold VIX" and is based on SPDR Gold Trust (GLD.P) options, spiked 30 percent to its highest since May 2010.
"At any given moment the world's central banks could step-up in an effort to calm a frantic situation. Gold may have been a one-way bet for some investors but as the risks to growth reach boiling point, so too does the price of protecting against a volatile movement in either direction," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group.
As Wall Street tumbled, the shares of gold producers including as Newmont Mining (NEM.N) and Barrick Gold (ABX.N) topped the U.S. percentage gainers, and SPDR Gold Trust, the No. 1 gold exchange-traded fund which largely tracks bullion prices, rose sharply.
The price of the yellow metal also rose above that of platinum for the first time since December 2008. Platinum prices turned lower on worries about demand from the car makers. Platinum was last priced at $1,712.74 an ounce.
Palladium was down 2.5 percent at $721.22. Palladium has fallen by about 14 percent in the last six sessions from a five-month high, weighed on heavily by auto demand worries.
Quote of the Day from Dave Ramsey.com:
The S&P downgrade could have an impact on all of us via interest rate hikes.
Gold rose an amazing 66 points today to set another all time record.
Here are the top financial stories of the day:
1) Dow Slides 5.5%, Ending Below 11000-From The Wall Street Journal
U.S. stocks tumbled in a Monday rout that sent the Dow Jones Industrial Average down 5.5%, plunging below 11000 for the first time since November, as investors fled from risky assets in the first trading session since Standard & Poor's downgraded the federal government's credit rating late Friday.
The Dow Jones Industrial Average sank 632 points at 10813, ending at the day's low, in preliminary closing figures at 4 p.m. Eastern time.
The Standard & Poor's 500 stock index tumbled 78 points, or 6.5%, to 1123, with financial and energy stocks falling hardest. The Nasdaq Composite slumped 168 points, or 6.6%, to 2364.
The Russell 2000 index of small-capitalization stocks was hit hardest, falling 63 points, or 8.9%, to 651. Small caps tend to make more exaggerated moves and are generally viewed as riskier than the widely held shares of large companies.
Investors' flight from risk was on full display Monday as S&P added downgrades of clearing bodies, entities such as Fannie Mae and Freddie Mac and lowered outlooks for companies including Warren Buffett's Berkshire Hathaway, following the Friday U.S. credit rating cut to double-A-plus from triple-A. Major stock indexes cascaded continually lower through Monday's session, much like they did during last Thursday's plunge, when the Dow lost nearly 513 points.
Gold futures soared above $1,720 an ounce for the first time as market partipicants scrambled after assets viewed as havens. One winner was U.S. Treasurys, which remained a haven for many investors despite the downgrade. Yield on the 10-year note fell to 2.3548% in recent action.
"Everybody is looking for whatever they perceive as a safe haven, even if it's just plain illogical," said David Kelly, chief market strategist for J.P. Morgan Funds. "Things are pretty dismal right now."
President Obama did little to assuage investor fears Monday afternoon as he said that the S&P downgrade should provide a "new sense of urgency" to tackle the deficit. Indexes hit fresh lows while the president spoke, and after.
"Everyone's running to the fiat currency, gold," said Dave Kavanagh, president of the Grant Park Fund in Chicago. "The market's telling [Washington] right now that we don't think that you can get your spending under control," he said.
The fact that Monday's stock-market swoon came right on the heels of the Dow's biggest weekly point loss since the financial crisis in 2008 set up many market participants for forced sales and margin calls, traders said. That made some of the losses self-perpetuating. It also raised the prospect of capitulation, the point when losses snowball and sentiment craters, helping markets find a bottom.
"There is a lot of forced liquidation," said Lorenzo Di Mattia, manager of Sibilla Global Fund, and such actions "might last another day perhaps."
Last week's swoon came as investors lost faith in European leaders' ability to stave off a debt crisis, and as fears grew that the economic slowdown would deepen into a recession. The losses sent the Dow down 5.8% and the broader S&P 500 to a 7.2% loss. The Nasdaq Composite fell 8.1% for the week. All three major U.S. stock indexes are in negative territory for 2011.
For some investors, worries about the strength of the global economy loomed just as large, if not larger, than the credit matters. Growth worries have reverberated through markets in recent weeks.
"The market is probably more concerned with the economic risk than with the S&P credit rating," said Bernie McDevitt, vice president of institutional trading at Cheevers & Co. Investors have "clearly decided we have further work to do [falling] lower."
The U.S. downgrade competed for investor attention with sovereign-debt headlines in Europe. European stocks erased early gains as the European Central Bank's pledge to buy sovereign bonds failed to restore investor confidence for long, with the Stoxx Europe 600 hitting a 15-month low.
Asian bourses were pummeled, with China's Shanghai Composite dropping nearly 4% to a 13-month low. The Group of 20 leading industrialized and developing nations statement that they were prepared to act in coordination to stabilize markets also failed to stem the selling tide.
Crude-oil futures slid below $82 a barrel amid worries about the economy.
The U.S. dollar fell against the yen, but moved higher versus the euro.
2) US debt downgrade could mean rate hikes for all-From the AP
Lawmakers weren't able to prevent the country from losing its coveted AAA debt rating.
Although the downgrade late Friday by Standard & Poor's was historic, it wasn't entirely unexpected. The three main credit agencies, which also include Moody's Investors Service and Fitch Ratings, had warned during the fight over the debt ceiling that if Congress did not cut spending far enough, the country faced a downgrade.
And just like a lower consumer credit score implies that a borrower is a less reliable, a lower credit rating for government bonds implies there is more risk involved in lending money to the government.
Prices for U.S. government debt rose in the first few hours of trading on Monday, a sign of increased demand despite the downgrade. But it is unclear what will happen in the long term, because of the unprecedented nature of the lower rating and the decisions by Moody's and Fitch to keep their highest ratings for now.
"If they all were saying exactly the same thing that would clearly have more impact than with a split rating," Alex Pollack, a fellow at the American Enterprise Institute in Washington.
If investors get skittish and Treasury prices reverse course, that could send the interest rate on Treasury bonds up. Essentially, the rate, or yield, would climb in order to make the bonds more attractive to investors.
That could lead to higher borrowing rates for consumers, because the rates on mortgages and other loans are often pegged to the yield on Treasury bonds.
Not every type of consumer borrowing has a direct tie to the government's credit rating, but there are potential ripple effects for individuals.
-- Mortgage and home equity loans
S&P's downgrade may have several implications for homeowners.
For starters, early Monday S&P downgraded the credit ratings of mortgage giants Fannie Mae and Freddie Mac, which are both backed by the U.S. government. That could mean higher mortgage rates for new borrowers. Freddie and Fannie together own or guarantee about half of all mortgages in the U.S.
Anyone hoping to buy a home in the near future likely has some time before they'll see rates climb. Still they should ask their bank or mortgage broker about the process for locking in a rate. Mortgage rates have been at historic lows in recent months, but fixed-rate mortgages are typically directly tied to the yield on 10-year Treasury bonds. Higher mortgage rates would follow any increase in the Treasury yield. But so far it appears that Treasury yields won't rise simply as a result of the downgrade.
Variable rate mortgages and home equity loans could become more expensive as well.
The high failure rate for adjustable rate mortgages during the housing meltdown means that today the number of new home loans with adjustable rates is minimal -- less than 5 percent of the market, according to Stephen Malpezzi, an economics professor at the University of Wisconsin Business School who follows the housing market.
What's less clear is how many older loans with adjustable rates remain out there, he said. With interest rates low in recent years, many homeowners who held adjustable rate mortgages have refinanced to fixed-rates.
For homeowners who still have ARMs, any potential change in their interest rates depends on whether their loan was linked to Treasury rates or some other benchmark, like the prime rate or federal funds rate.
Meanwhile, home equity loans, or HELOCs, are almost always variable rate loans and typically adjust more frequently than first mortgages, sometimes even monthly.
Homeowners with such loans could see shifts in their rates and payments while the markets absorb the downgrade.
One caveat is that many ARMs and most HELOCs are tied to the federal funds rate, which is set by the Federal Reserve, not to Treasuries. That should help insulate borrowers. The Fed, which meets Tuesday, has already said that it plans to keep rates low for "an extended period."
"The Fed is not likely to increase the federal funds rate anytime in the near future, especially if there's another problem with the economy as a result of the whole debt ceiling thing," said Gibran Nicholas, chairman of the Certified Mortgage Planning Specialist Institute.
-- Credit cards
Consumers across the country, who carry an average $4,950 on their credit cards according to TransUnion, will be relieved to know that any changes as a result of the downgrade won't be dramatic. And to the extent there are changes, certain protections are in place.
Most accounts with fixed rates were converted to variable rates in 2009 in response to the economic downturn and new regulations.
Banks don't publicize the rates they're charging current customers, but nearly 96 percent of the offers sent out for new cards in the first six months of this year carried variable rates, according to Mintel Compermedia, a market research firm.
Right now, banks are offering an average annual interest rate of 14.4 percent, according to Bankrate.com.
However, like HELOCs, most card rates rise and fall with the prime rate, which is pegged to the rate set by the Fed. That will help protect credit card users from the market's gyrations in the short term.
The good news is that even if market forces start sending card rates higher, current account balances will be protected from rate hikes under the credit card reforms passed in 2009. That means only new charges would be subject to higher rates. If rates rise several times over a period of months, card users could end up with multiple rates on various balances.
John Ulzheimer, president of consumer education for SmartCredit.com, noted that the law now requires banks to apply any payments above the minimum required to the highest rate balance. That's so those new balances may get paid off faster. But any scenario involving volatility could make for some confusing statements
3) Gold soars over $1,700 on debt fears-From Reuters
Gold surged more than 3 percent on Monday, surpassing $1,700 an ounce for the first time, after Standard & Poor's cut the top-notch AAA credit rating of the United States, setting off an investor stampede for safety.
In a rout reminiscent of the 2008 financial crisis, Wall Street plunged as much as 6 percent and other commodities collapsed as panicky investors sought refuge in bullion and U.S. Treasuries.
Analysts scrambled to revise up gold forecasts and gold volatility spiked as options traders put on bullish bets.
News on Sunday of a European Central Bank bond-buying program to help shore up Italian and Spanish debt proved too little to soothe global market fears of a double-dip recession, greater government intervention and further market turmoil, any of which could extend gold's 15 percent rally since June.
In the first session since S&P's downgrade, U.S. gold futures were headed for their biggest one-day gain since March 2009. Traders are now looking ahead to Tuesday's Federal Reserve's policy meeting, with growing expectations it may hint at an even longer period of ultra-easy monetary policy further.
"Investors are looking upon the ECB bond-buying as the first step toward the same kind of quantitative easing program the Fed is doing. So, gold acts as the only currency that you can't print more of, and you are seeing a huge institutional demand for it," said James Rife, an assistant portfolio manager at Haber Trilix Advisors, which manages $2 billion in assets.
Spot gold was up 3.1 percent at $1,714.09 an ounce by 2:39 PM EDT (1839 GMT), having hit a record $1,719.99 earlier and marking all-time highs against sterling and euros.
Adjusted for inflation, bullion is one of the few in the commodity complex trading below its adjusted all-time highs, estimated at around $2,500 an ounce.
JPMorgan (JPM.N) said on Monday it expects spot gold prices to climb to $2,500 an ounce or higher by year-end, on very high volatility, following the downgrade of U.S. debt. The U.S. bank said that its previous estimate of $1,800 was "too conservative.
The prospect of an even longer period of low U.S. interest rates prompted Goldman Sachs (GS.N) to raise its three-month forecast for the gold price by about $100.
Silver rose 1.9 percent to $39.03 an ounce.
The CBOE Gold ETF Volatility Index .GVZ, which is often referred to as the "Gold VIX" and is based on SPDR Gold Trust (GLD.P) options, spiked 30 percent to its highest since May 2010.
"At any given moment the world's central banks could step-up in an effort to calm a frantic situation. Gold may have been a one-way bet for some investors but as the risks to growth reach boiling point, so too does the price of protecting against a volatile movement in either direction," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group.
As Wall Street tumbled, the shares of gold producers including as Newmont Mining (NEM.N) and Barrick Gold (ABX.N) topped the U.S. percentage gainers, and SPDR Gold Trust, the No. 1 gold exchange-traded fund which largely tracks bullion prices, rose sharply.
The price of the yellow metal also rose above that of platinum for the first time since December 2008. Platinum prices turned lower on worries about demand from the car makers. Platinum was last priced at $1,712.74 an ounce.
Palladium was down 2.5 percent at $721.22. Palladium has fallen by about 14 percent in the last six sessions from a five-month high, weighed on heavily by auto demand worries.
Quote of the Day from Dave Ramsey.com:
Failure is not a single, cataclysmic event. You don't fail overnight. Instead, failure is a few errors in judgment, repeated every day. — Jim Rohn
Friday, August 5, 2011
Financial Headline News for Friday 8/5
Today was one of the wildest trading days in recent memory as there were 3 swings of at least 150 going in both directions.
Finally some good news on the economic front-the unemployment rate went down from 9.2% to 9.1%.
The controls caused by the flash crash of May 2010 were in place yesterday during the wild trading day.
Here are the top financial stories of the day:
1) Stocks end a day of wild swings mostly down-From the AP
If you looked away Friday, you missed a market rally. Or a plunge.
A soothing government report on employment in July eased concerns that the U.S. might slide back into a recession, and the Dow Jones industrial average rose as much as 171 points soon after trading began. But fears that Europe's growing debt crisis might threaten U.S. banks and the fragile economy ruled Friday.
After its early rise, the Dow fell more than 400 points and was down 243 just before noon. Then it rose nearly 400 points in less than an hour and was up 135 points. The rest of the day, the blue-chip stock index bounced up and down, sometimes by as much as 100 points in less than half an hour. It ended the day up 61 points, or 0.5 percent.
Stocks have been "like a tether ball being smacked around the pole" by worries about weakening economies around the world, said Sam Stovall, chief investment strategist for Standard & Poor's Equity Research.
Even less-developed countries like Brazil and China, which have been the motor of global growth for three years, are slowing. Brazilian stocks have dropped nearly 30 percent since Nov. 4 as the country tries to stem inflation. Manufacturing in China shrank in July for the first time in a year.
In Europe, debt problems are spreading, threatening Italy and Spain, the continent's third-and fourth-largest economies. In the U.S, a possible debt default was averted earlier this week, but concerns remain. Chief among them: less spending by consumers, which is leading to anemic growth by both manufacturing and service companies and too few new jobs to lower the unemployment rate significantly.
Investors also worry that the federal government is more likely to hurt the economy than help it. Instead of more spending, the government is trying to reduce its budget deficits by spending less.
Randy Warren, chief investment officer at the investment company Warren Financial Service, said markets were jittery over how leaders in the U.S. reacted to the debt crisis here and how leaders in Europe have reacted to the growing debt problems there.
"The fear was that they had no plan to deal with the situation," Warren said.
In Europe, either Italy or Spain could become the next country unable to repay its debt. European leaders and central bankers might not have the cash needed to prop them up until a larger financial rescue fund can be established.
"The burden of debt has become much more onerous because the outlook for growth is sliding back. That is very concerning for the markets," said Don Smith, economist at ICAP, the largest inter-dealer broker in the world. "The fear is ultimately about defaults and business failures."
In the U.S., few believe the government is likely to stimulate the economy through spending, as it did with its $800 billion stimulus program in 2009. Washington will instead cut spending by more than $2.1 trillion over 10 years to reduce the deficit.
"When investors took a step back and looked at the deal, it became clear that the long-term debt issues have yet to be resolved and that some hard decisions still need to be made," said Bob Doll, chief equity strategist at BlackRock. "Investors do not like uncertainty."
That contributed significantly to the up and down trading on Friday and all week, strategists said. Some investors bought stocks after steep price declines, said Ron Florance, an investment strategist at Wells Fargo Private Bank. That helped reverse the midday loss. Others have rushed to sell their holdings before the weekend, he said. That contributed to the declines seen in the morning and the pared-back gains in the afternoon.
Such volatility often follows historic sell-offs like the one Thursday, analysts said.
All three major stock indexes are in correction. That is, they are down 10 percent or more off their recent highs.
The Dow fell 5.8 percent this week. It plunged 513 points on Thursday alone, the worst day for the Dow since 2008.
The S&P 500, the benchmark for most mutual funds, fell 0.1 percent Friday. It fell 7.2 percent for the week and is down 10.8 percent since July 22, when its steady declines began.
The Nasdaq composite index fell 24 points, or 0.9 percent. It is down 11.4 percent since July 22.
Commodities also fell on worries that weaker global economies will mean less demand. Crude oil fell $8.82, to $86.88 over the week.
Overseas markets also fell Friday. Tokyo, Hong Kong and China all closed down more than 2 percent. Taiwan lost 5.6 percent. Asian markets all closed before the jobs report was released in the U.S. In Europe, shares recovered some of their losses after plunging to their lowest levels in more than a year. Germany's DAX index fell 2.8 percent. It had been down as much as 4 percent before the jobs report was released in the U.S. Other indexes showed smaller losses.
The yield on the 2-year Treasury note fell to 0.29 percent, after brushing a record low of 0.26 percent earlier Friday. Investors looking for safer assets have rushed to buy Treasurys, sending their prices higher and yields lower. The yield on the benchmark 10-year Treasury note rose to 2.56 percent after hitting a low of 2.39 percent on Thursday.
Florance, of Wells Fargo, said he expected stocks to remain volatile for the next several weeks until it's clear how healthy -- or unhealthy -- the economy is.
The U.S. economy added 117,000 jobs in July, and 56,000 more were added in May and June than reported previously, the Labor Department said. The unemployment rate inched down to 9.1 percent from 9.2 percent, partly because some unemployed workers stopped looking for work, so they were no longer counted as unemployed. Health care providers and manufacturers added jobs.
"From an economic standpoint, 117,000 jobs is hardly sufficient to boost the economy," said Dan Greenhaus, chief global strategist at the trading firm BTIG.
But the number was what people who follow the markets were hoping for. The consensus forecast had been that the economy added 90,000 jobs in July. As the week wore on, investors began to worry the number would be smaller or even negative. After Thursday's market meltdown, the employment report, which was released before the market opened Friday, was considered reassuring.
More than 200,000 jobs need to be created every month to rapidly reduce the unemployment rate.
Unemployment has been above 9 percent nearly every month since the recession officially ended in June 2009. The economy has created an average of just 72,000 jobs over the last three months, down from 215,000 from February through April.
At the same time, the economy grew at just a 1.3 percent annual rate in the second quarter, less than economists expected. That weakness means one economic shock or policy mistake could tip the economy into a recession, Wachovia senior economist Mark Vitner said. Nigel Gault, chief U.S. economist for IHS
Global Insight, said the probability of another recession is 40 percent.
Even so, many analysts said the economy might not be as bad off as it seems. For one thing, companies have reported strong profits and are flush with cash. They also cut costs drastically during the recession.
Those in the S&P 500 have amassed more than $963 billion in cash. That's up from $610 billion at the start of the recession, according to S&P. Earnings in the second quarter rose 11 percent from a year ago for the 422 companies in the S&P 500 index that have reported so far.
Even so, only three of the S&P 500's ten industry groups are up for the year: Health care, utilities and consumer staples. Traders consider those companies to be relatively recession-resistant.
Procter & Gamble Co. rose 1.7 percent Friday. Fourth-quarter revenue and income jumped on strong sales in emerging markets.
Viacom Inc. rose 1.9 percent after the media company said its income and revenue increased more than analysts expected in the second quarter because of strong advertising sales and fees from cable companies.
Priceline.com Inc. surged 9.2 percent, the most in the S&P, after the company reported that it earned far more than analysts had expected in the second quarter as travel bookings on the website increased.
2) Payrolls Grow as Unemployment Ticks Down-From The Wall Street Journal
The U.S. economy added more jobs than expected in July and the unemployment rate edged down, a move that should help ease concerns that a new recession may be around the corner.
Nonfarm payrolls rose by 117,000 last month as private-sector employers added 154,000 jobs, the Labor Department said Friday. Payroll data for the previous two months were revised up by a total 56,000 to show increases of 46,000 jobs in June and 53,000 in May.
The unemployment rate, which is obtained from a separate household survey, dropped to 9.1% last month from 9.2% in June. That still leaves almost 14 million Americans who would like to work without a job.
The numbers were better than expected and may help lift stock markets, which fell sharply Thursday amid concerns that a new recession may be in the offing. Economists surveyed by Dow Jones Newswires had forecast payrolls would rise by 75,000 in July and that the jobless rate would remain at 9.2%.
The economy slowed sharply in the first half, heightening concerns it could fall back into recession two years after the end of the downturn that followed the financial crisis. The jobs report takes some pressure off the
Federal Reserve and President Barack Obama's administration to take immediate steps to boost the economy. Policy makers' tools are limited by an already high public debt and interest rates close to zero.
Friday's report showed private-sector employers, which account for about 70% of the work force, added 154,000 jobs in July, up from 80,000 in June. Several major industries showed job gains.
Manufacturing employment increased by 24,000 in July, more than double the gain from the previous month. Economists had been expecting a bounce as disruptions to production stemming from Japan's earthquake have been easing. Even the battered construction sector showed a gain, with employment rising by 8,000.
However, the housing sector remains a drag on the economy.
Meanwhile, government employment continued to fall—by 37,000—for the ninth month in a row. State and local governments, which are struggling to close budget gaps, showed job losses.
Even though the jobs report was better than expected, the labor market remains weak. Facing re-election in 15 months, Mr. Obama this week called on Congress to extend unemployment benefits and a payroll-tax credit after lawmakers approved a deal to raise the nation's debt limit. But he is likely to face stiff opposition from Republicans worried about government spending.
Even the Fed's options are limited. Donald Kohn, the Fed's no. 2 official until Sept. 2010, said in an interview this week that the central bank should consider a third round of bond purchases to spur the economy, but only if unemployment stays high and inflation comes down.
The jobs report Friday showed 44.4% of unemployed Americans, or 6.2 million people, were out of work for more than six months in July. The longer someone is without a job, the harder it is to find work.
The report showed that Americans' incomes, which are crucial to fuel spending needed to boost the economy, rose but remained moderate. Average hourly earnings of all employees rose by $0.10 to $23.13.
Over the past year, earnings have increased by only 2.3%.
3) 'Flash Crash' Fail-Safes Bent but Didn't Break in Selloff -From The Wall Street Journal
Wall Street's worst stock plunge in three years unfolded in a relatively orderly manner, as market safeguards put in place after last year's "flash crash" appeared to have done their job.
Despite significant glitches hitting European markets and a few minor headaches in the U.S., participants gave high marks to the complex electronic-trading network that suffered a meltdown in May 2010.
"The markets were very similar from a macroeconomic standpoint as they were on May 6 of last year, and obviously things performed much better," said Joseph Cangemi, managing director of electronic trading for Convergex Inc. "We could have had a situation at any one time where capitulation could have happened, but the market structure itself did not allow it to breach any critical levels."
Trading on Thursday was the U.S. stock market's busiest day since late May 2010, with 13.9 billion shares changing hands as investors fled from stocks. An average day this year has seen 7.5 billion shares traded, holding well below the prior-year average of 8.5 billion.
Grappling with an unusually heavy flow of orders caused some exchanges and private trading platforms to occasionally reject orders when their systems became overloaded, but it was "nothing crazy," according to the head of electronic stock trading for one Wall Street bank.
Problems in Europe were more severe, where derivatives markets run by NYSE Euronext reported a 90-minute trading engine outage that forced a delayed open for interest-rate and stock-index contracts, while driving erroneous calculations of equity indexes compiled by the exchange group.
Milan-based Borsa Italiana also told traders of problems disseminating stock index data, caused by slow feeds.
During the freefall in share valuations that erased all 2011 gains for the Dow Jones Industrial Average, new "circuit breakers" introduced after the 2010 flash crash to guard specific stocks against rapid price swings were triggered by just one stock: Clearwire Corp., which reported steeper losses for the second quarter as expenses jumped. The Dow closed about 4.3% lower and remained well within market-wide circuit-breaker levels that would have triggered a shutdown of all U.S. stock trading.
Another new safeguard formulated following the flash crash—rules identifying trades entered in obvious error—was invoked when Vodafone's stock more than doubled in price to $57.50 before returning to trade at $27.57. NYSE Amex ultimately canceled all trades carried out above $28.89.
Meanwhile, roughly 460 short-sale restrictions were invoked, well above average. The procedure is triggered when a stock's price falls at least 10% in a single day. In such cases, traders are only allowed to sell the stock short at a price above the highest national bid, serving to relieve what is often sharp, rapid selling pressure.
At U.S. stock exchanges, the action was viewed as a vindication of market procedures.
"Investors are anxious about the U.S. and global economic outlook, and the current market volatility reflects their distress," said Larry Leibowitz, chief operating officer of NYSE Euronext. "While high volume has accompanied this volatility, we have not seen a real panic," he added, asserting that exchanges' performance has been "high" through a "difficult time."
Quote of the Day from Dave Ramsey.com:
Finally some good news on the economic front-the unemployment rate went down from 9.2% to 9.1%.
The controls caused by the flash crash of May 2010 were in place yesterday during the wild trading day.
Here are the top financial stories of the day:
1) Stocks end a day of wild swings mostly down-From the AP
If you looked away Friday, you missed a market rally. Or a plunge.
A soothing government report on employment in July eased concerns that the U.S. might slide back into a recession, and the Dow Jones industrial average rose as much as 171 points soon after trading began. But fears that Europe's growing debt crisis might threaten U.S. banks and the fragile economy ruled Friday.
After its early rise, the Dow fell more than 400 points and was down 243 just before noon. Then it rose nearly 400 points in less than an hour and was up 135 points. The rest of the day, the blue-chip stock index bounced up and down, sometimes by as much as 100 points in less than half an hour. It ended the day up 61 points, or 0.5 percent.
Stocks have been "like a tether ball being smacked around the pole" by worries about weakening economies around the world, said Sam Stovall, chief investment strategist for Standard & Poor's Equity Research.
Even less-developed countries like Brazil and China, which have been the motor of global growth for three years, are slowing. Brazilian stocks have dropped nearly 30 percent since Nov. 4 as the country tries to stem inflation. Manufacturing in China shrank in July for the first time in a year.
In Europe, debt problems are spreading, threatening Italy and Spain, the continent's third-and fourth-largest economies. In the U.S, a possible debt default was averted earlier this week, but concerns remain. Chief among them: less spending by consumers, which is leading to anemic growth by both manufacturing and service companies and too few new jobs to lower the unemployment rate significantly.
Investors also worry that the federal government is more likely to hurt the economy than help it. Instead of more spending, the government is trying to reduce its budget deficits by spending less.
Randy Warren, chief investment officer at the investment company Warren Financial Service, said markets were jittery over how leaders in the U.S. reacted to the debt crisis here and how leaders in Europe have reacted to the growing debt problems there.
"The fear was that they had no plan to deal with the situation," Warren said.
In Europe, either Italy or Spain could become the next country unable to repay its debt. European leaders and central bankers might not have the cash needed to prop them up until a larger financial rescue fund can be established.
"The burden of debt has become much more onerous because the outlook for growth is sliding back. That is very concerning for the markets," said Don Smith, economist at ICAP, the largest inter-dealer broker in the world. "The fear is ultimately about defaults and business failures."
In the U.S., few believe the government is likely to stimulate the economy through spending, as it did with its $800 billion stimulus program in 2009. Washington will instead cut spending by more than $2.1 trillion over 10 years to reduce the deficit.
"When investors took a step back and looked at the deal, it became clear that the long-term debt issues have yet to be resolved and that some hard decisions still need to be made," said Bob Doll, chief equity strategist at BlackRock. "Investors do not like uncertainty."
That contributed significantly to the up and down trading on Friday and all week, strategists said. Some investors bought stocks after steep price declines, said Ron Florance, an investment strategist at Wells Fargo Private Bank. That helped reverse the midday loss. Others have rushed to sell their holdings before the weekend, he said. That contributed to the declines seen in the morning and the pared-back gains in the afternoon.
Such volatility often follows historic sell-offs like the one Thursday, analysts said.
All three major stock indexes are in correction. That is, they are down 10 percent or more off their recent highs.
The Dow fell 5.8 percent this week. It plunged 513 points on Thursday alone, the worst day for the Dow since 2008.
The S&P 500, the benchmark for most mutual funds, fell 0.1 percent Friday. It fell 7.2 percent for the week and is down 10.8 percent since July 22, when its steady declines began.
The Nasdaq composite index fell 24 points, or 0.9 percent. It is down 11.4 percent since July 22.
Commodities also fell on worries that weaker global economies will mean less demand. Crude oil fell $8.82, to $86.88 over the week.
Overseas markets also fell Friday. Tokyo, Hong Kong and China all closed down more than 2 percent. Taiwan lost 5.6 percent. Asian markets all closed before the jobs report was released in the U.S. In Europe, shares recovered some of their losses after plunging to their lowest levels in more than a year. Germany's DAX index fell 2.8 percent. It had been down as much as 4 percent before the jobs report was released in the U.S. Other indexes showed smaller losses.
The yield on the 2-year Treasury note fell to 0.29 percent, after brushing a record low of 0.26 percent earlier Friday. Investors looking for safer assets have rushed to buy Treasurys, sending their prices higher and yields lower. The yield on the benchmark 10-year Treasury note rose to 2.56 percent after hitting a low of 2.39 percent on Thursday.
Florance, of Wells Fargo, said he expected stocks to remain volatile for the next several weeks until it's clear how healthy -- or unhealthy -- the economy is.
The U.S. economy added 117,000 jobs in July, and 56,000 more were added in May and June than reported previously, the Labor Department said. The unemployment rate inched down to 9.1 percent from 9.2 percent, partly because some unemployed workers stopped looking for work, so they were no longer counted as unemployed. Health care providers and manufacturers added jobs.
"From an economic standpoint, 117,000 jobs is hardly sufficient to boost the economy," said Dan Greenhaus, chief global strategist at the trading firm BTIG.
But the number was what people who follow the markets were hoping for. The consensus forecast had been that the economy added 90,000 jobs in July. As the week wore on, investors began to worry the number would be smaller or even negative. After Thursday's market meltdown, the employment report, which was released before the market opened Friday, was considered reassuring.
More than 200,000 jobs need to be created every month to rapidly reduce the unemployment rate.
Unemployment has been above 9 percent nearly every month since the recession officially ended in June 2009. The economy has created an average of just 72,000 jobs over the last three months, down from 215,000 from February through April.
At the same time, the economy grew at just a 1.3 percent annual rate in the second quarter, less than economists expected. That weakness means one economic shock or policy mistake could tip the economy into a recession, Wachovia senior economist Mark Vitner said. Nigel Gault, chief U.S. economist for IHS
Global Insight, said the probability of another recession is 40 percent.
Even so, many analysts said the economy might not be as bad off as it seems. For one thing, companies have reported strong profits and are flush with cash. They also cut costs drastically during the recession.
Those in the S&P 500 have amassed more than $963 billion in cash. That's up from $610 billion at the start of the recession, according to S&P. Earnings in the second quarter rose 11 percent from a year ago for the 422 companies in the S&P 500 index that have reported so far.
Even so, only three of the S&P 500's ten industry groups are up for the year: Health care, utilities and consumer staples. Traders consider those companies to be relatively recession-resistant.
Procter & Gamble Co. rose 1.7 percent Friday. Fourth-quarter revenue and income jumped on strong sales in emerging markets.
Viacom Inc. rose 1.9 percent after the media company said its income and revenue increased more than analysts expected in the second quarter because of strong advertising sales and fees from cable companies.
Priceline.com Inc. surged 9.2 percent, the most in the S&P, after the company reported that it earned far more than analysts had expected in the second quarter as travel bookings on the website increased.
2) Payrolls Grow as Unemployment Ticks Down-From The Wall Street Journal
The U.S. economy added more jobs than expected in July and the unemployment rate edged down, a move that should help ease concerns that a new recession may be around the corner.
Nonfarm payrolls rose by 117,000 last month as private-sector employers added 154,000 jobs, the Labor Department said Friday. Payroll data for the previous two months were revised up by a total 56,000 to show increases of 46,000 jobs in June and 53,000 in May.
The unemployment rate, which is obtained from a separate household survey, dropped to 9.1% last month from 9.2% in June. That still leaves almost 14 million Americans who would like to work without a job.
The numbers were better than expected and may help lift stock markets, which fell sharply Thursday amid concerns that a new recession may be in the offing. Economists surveyed by Dow Jones Newswires had forecast payrolls would rise by 75,000 in July and that the jobless rate would remain at 9.2%.
The economy slowed sharply in the first half, heightening concerns it could fall back into recession two years after the end of the downturn that followed the financial crisis. The jobs report takes some pressure off the
Federal Reserve and President Barack Obama's administration to take immediate steps to boost the economy. Policy makers' tools are limited by an already high public debt and interest rates close to zero.
Friday's report showed private-sector employers, which account for about 70% of the work force, added 154,000 jobs in July, up from 80,000 in June. Several major industries showed job gains.
Manufacturing employment increased by 24,000 in July, more than double the gain from the previous month. Economists had been expecting a bounce as disruptions to production stemming from Japan's earthquake have been easing. Even the battered construction sector showed a gain, with employment rising by 8,000.
However, the housing sector remains a drag on the economy.
Meanwhile, government employment continued to fall—by 37,000—for the ninth month in a row. State and local governments, which are struggling to close budget gaps, showed job losses.
Even though the jobs report was better than expected, the labor market remains weak. Facing re-election in 15 months, Mr. Obama this week called on Congress to extend unemployment benefits and a payroll-tax credit after lawmakers approved a deal to raise the nation's debt limit. But he is likely to face stiff opposition from Republicans worried about government spending.
Even the Fed's options are limited. Donald Kohn, the Fed's no. 2 official until Sept. 2010, said in an interview this week that the central bank should consider a third round of bond purchases to spur the economy, but only if unemployment stays high and inflation comes down.
The jobs report Friday showed 44.4% of unemployed Americans, or 6.2 million people, were out of work for more than six months in July. The longer someone is without a job, the harder it is to find work.
The report showed that Americans' incomes, which are crucial to fuel spending needed to boost the economy, rose but remained moderate. Average hourly earnings of all employees rose by $0.10 to $23.13.
Over the past year, earnings have increased by only 2.3%.
3) 'Flash Crash' Fail-Safes Bent but Didn't Break in Selloff -From The Wall Street Journal
Wall Street's worst stock plunge in three years unfolded in a relatively orderly manner, as market safeguards put in place after last year's "flash crash" appeared to have done their job.
Despite significant glitches hitting European markets and a few minor headaches in the U.S., participants gave high marks to the complex electronic-trading network that suffered a meltdown in May 2010.
"The markets were very similar from a macroeconomic standpoint as they were on May 6 of last year, and obviously things performed much better," said Joseph Cangemi, managing director of electronic trading for Convergex Inc. "We could have had a situation at any one time where capitulation could have happened, but the market structure itself did not allow it to breach any critical levels."
Trading on Thursday was the U.S. stock market's busiest day since late May 2010, with 13.9 billion shares changing hands as investors fled from stocks. An average day this year has seen 7.5 billion shares traded, holding well below the prior-year average of 8.5 billion.
Grappling with an unusually heavy flow of orders caused some exchanges and private trading platforms to occasionally reject orders when their systems became overloaded, but it was "nothing crazy," according to the head of electronic stock trading for one Wall Street bank.
Problems in Europe were more severe, where derivatives markets run by NYSE Euronext reported a 90-minute trading engine outage that forced a delayed open for interest-rate and stock-index contracts, while driving erroneous calculations of equity indexes compiled by the exchange group.
Milan-based Borsa Italiana also told traders of problems disseminating stock index data, caused by slow feeds.
During the freefall in share valuations that erased all 2011 gains for the Dow Jones Industrial Average, new "circuit breakers" introduced after the 2010 flash crash to guard specific stocks against rapid price swings were triggered by just one stock: Clearwire Corp., which reported steeper losses for the second quarter as expenses jumped. The Dow closed about 4.3% lower and remained well within market-wide circuit-breaker levels that would have triggered a shutdown of all U.S. stock trading.
Another new safeguard formulated following the flash crash—rules identifying trades entered in obvious error—was invoked when Vodafone's stock more than doubled in price to $57.50 before returning to trade at $27.57. NYSE Amex ultimately canceled all trades carried out above $28.89.
Meanwhile, roughly 460 short-sale restrictions were invoked, well above average. The procedure is triggered when a stock's price falls at least 10% in a single day. In such cases, traders are only allowed to sell the stock short at a price above the highest national bid, serving to relieve what is often sharp, rapid selling pressure.
At U.S. stock exchanges, the action was viewed as a vindication of market procedures.
"Investors are anxious about the U.S. and global economic outlook, and the current market volatility reflects their distress," said Larry Leibowitz, chief operating officer of NYSE Euronext. "While high volume has accompanied this volatility, we have not seen a real panic," he added, asserting that exchanges' performance has been "high" through a "difficult time."
Quote of the Day from Dave Ramsey.com:
There is a great difference between worry and concern. A worried person sees a problem, and a concerned person solves a problem. — Harold Stephens
Thursday, August 4, 2011
Financial Headline News for Thursday 8/4
Stocks plunged all day from the opening bell to close with the Dow down an amazing 4.31%! From the end of the bogus program known as QE2 on June 30th, the Dow has fallen from 12,414.34 to 11,383.68. Any thought of QE3 Mr. Bernanke to manipulate the dollar and the stock market?
For the 17th consecutive week unemployment claims topped the 400K mark coming in at an even 400K.
Now its Italy's turn in the European Financial Crisis.
Here are the top financial stories of the day:
1) Wall Street’s Awful Day by the Numbers-From Yahoo Finance
2) Jobless claims edge down last week-From Reuters
New claims for unemployment benefits were little changed last week, a government report showed on Thursday, pointing to a marginal improvement in the labor market.
Initial claims for state unemployment benefits nudged down 1,000 to a seasonally adjusted 400,000, the Labor Department said.
Economists polled by Reuters had forecast claims rising to 405,000. The prior week's figure was revised up to 401,000 from the previously reported 398,000.
The claims data falls outside the survey period for the government's closely monitored employment report for July, which is scheduled for release on Friday.
Nonfarm payrolls likely increased 85,000 last month, according to a Reuters survey, after rising only 18,000 in June. The unemployment rate is expected to hold steady at 9.2 percent.
The labor market is being anxiously watched for signs whether the economy will regain speed after growth stalled in the first half of this year. Gross domestic product grew at an annual pace of 1.3 percent in the second quarter after a negligible 0.4 percent rate in the January-March period.
Data so far show the anemic growth pace persisted early in the third quarter, with manufacturing activity hitting a two-year low in July and the services sector expanding at its slowest pace in nearly 1-1/2 years.
Jobless claims are hovering around 400,000 and need to decisively break beneath that level to signal a sustainable improvement in the labor market.
A Labor Department official said there was nothing unusual in the data, adding there was no indication that a partial shutdown of the Federal Aviation Administration had affected last week's claims.
An impasse in Congress over the funding of the FAA has halted airport construction and inspections programs employing about 74,000 workers.
The four-week moving average of claims, considered a better measure of labor market trends, fell 6,750 to 407,750-the lowest since mid-April.
The number of people still receiving benefits under regular state programs after an initial week of aid rose 10,000 to 3.73 million in the week ended July 23.
The number of Americans on emergency unemployment benefits increased 12,193 to 3.18 million in the week ended July 16, the latest week for which data is available.
A total of 7.57 million people were claiming unemployment benefits during that period under all programs, down 75,192 from the prior week.
3) Italy's Woes Weigh on Europe-From The Wall Street Journal
Italian Prime Minister Silvio Berlusconi resisted calls for a swift economic overhaul, heightening worries that the world's eighth-largest economy is sliding into the sort of debt distress that has laid low its smaller European neighbors.
Instead, Mr. Berlusconi blamed global market turbulence for the current spotlight on Italy. Meanwhile, José Manuel Barroso, the president of the European Commission, the European Union's executive arm, released a blistering statement calling the weakening bond prices of Spain and Italy "a cause of deep concern" and urging governments to signal "resolve to address the sovereign debt crisis with the means commensurate with the gravity of the situation."
Meanwhile, Japan and Switzerland took action to hold down the rise of their currencies, where investors for months have been seeking refuge from financial-market turmoil. Tokyo intervened Thursday morning in markets to stem the rise of the yen against the dollar, hoping to preserve modest economic growth that is threatened by a soaring currency undermining exporters. On Wednesday, the Swiss National Bank cut interest rates to nearly zero and pledged to pump billions of newly minted francs into markets, calling its currency "massively overvalued."
Just two weeks after Europe's leaders agreed to a long-awaited second bailout for Greece—considered the Continent's sick man for more than a year—investors are now turning their attention to Italy, the euro-zone's third-largest economy. Italy's debt as a proportion of economic output is second only to Greece's in Europe, and has been plagued by slow growth for more than a decade.
By the end of trading on Wednesday, the yield on 10-year Italian bonds stood at 6.07%. That makes it more expensive for Italy to borrow money, with investors demanding a premium of 3.66 percentage points over benchmark German bonds. Borrowing costs in Spain—long considered the next most vulnerable euro-zone economy after Greece, Portugal and Ireland, which have already received official bailouts—also continued to rise, with the yield on 10-year Spanish bonds closing at 6.23%.
Making things worse are signs that even Europe's stronger economies—Germany, France and the Netherlands—might be headed for a bout of weakness. After expanding at an annualized pace of more than 3% in the first quarter, the euro zone is estimated to have grown at less than half that in the second. Purchasing-manager reports for July suggest euro-area manufacturing was broadly flat to start the third quarter.
Even Germany's manufacturing purchasing managers' index fell to a two-year low last month. That is far from double-dip territory, but it means Europe's largest economy will have to grow well above historic norms to keep the euro bloc chugging along.
Lower growth makes it harder for heavily indebted economies to escape their debt burdens.
Hints that the weakness is starting to affect the euro zone's hitherto stronger economies will heighten the dilemma facing the European Central Bank, which holds a regular meeting Thursday and has begun tightening policy to make sure it keeps inflation in check.
Many had hoped Mr. Berlusconi would show more resolve on Wednesday in his speech to Parliament. Economists and investors have called on the Italian government to show new efforts to revive growth, which is hampered by tight labor laws, high taxes and crippling bureaucracy.
Over the past few days, Italian business leaders had called for a further strengthening of a €40 billion ($57 billion) deficit-busting plan that Parliament approved two weeks ago. Taking a strong stand, some said, would also appease market concerns over the cohesion of the Italian government, which has been put into doubt over reports that Finance Minister Giulio Tremonti might resign—something he has so far denied.
"We have a huge problem of credibility in the country. We need leadership capable of restoring cohesion," Sergio Marchionne, chief executive of Fiat SpA and Chrysler LLC, said in an interview with Italian news agency ANSA before the premier's speech.
Mr. Berlusconi said the rise in Italy's borrowing costs was due to market tensions related to the drawn-out debt talks in Washington, and said markets were failing to consider the high level of savings among Italian families and the strength of local banks, which he said had weathered the financial crisis better than their European peers.
"As often happens in a crisis of confidence, the markets are not correctly valuing the merit of our credit," Mr. Berlusconi said. "Our economy is healthy. The country is economically and financially solid."
The address "did not contain anything specific to turn market sentiment decisively," said Fabio Fois, an analyst with Barclay's Capital. "The government should reopen the reform agenda, as markets have been increasingly focused on the prospects of the real economy."
One reason Italy, which for months had been shielded from the debt crisis, has taken center stage is that it is generally considered too large for the rest of Europe to bail out.
Already, the means for future bailouts are in doubt. The euro zone has for months planned to expand its main rescue fund to €440 billion in lending capacity from around €250 billion, but that measure requires ratification by national parliaments—unlikely before fall. An agreement in July by national leaders to imbue the fund with new powers to intervene and to lend to countries not at the brink of bankruptcy hasn't been put into action either.
Quote of the Day from Dave Ramsey.com:
For the 17th consecutive week unemployment claims topped the 400K mark coming in at an even 400K.
Now its Italy's turn in the European Financial Crisis.
Here are the top financial stories of the day:
1) Wall Street’s Awful Day by the Numbers-From Yahoo Finance
The Dow Jones Industrial Average had its worst point decline -- and 10th drop overall in 11 days -- in almost three years on Thursday as worries about the economy, in both the U.S. and around the world, continued to grow. The Dow hasn't closed this low since December, and it hasn't seen an intraday drawdown this fierce since the flash crash of May 2010.
Selling was widespread on Wall Street, and investors struggled to find safety. Everywhere you turned, almost regardless of stock, sector or asset class, the direction was downward. The Dow is now lower by 1.67% for the year, according to data from Dow Jones Indexes, and is in a correction owing to a close that's 10% under its recent high.
Here's a quick look at some of the key numbers at the end of what was a brutal day in New York trading:
-Dow Jones Industrial Average (^DJI): Down 512.76 points, or 4.31%, to 11,383.68
-S&P 500 (^GSPC): Down 60.27 points, or 4.78%, to 1200.07
-Nasdaq Composite (^IXIC): Down 136.68 points, or 5.08%, to 2556.39
-Russell 2000 (^RUT): Down 45.98 points, or 5.95%, to 726.80
-S&P 500 Volatility Index (^VIX): Up 8.28, or 35.41%, to 31.66
-Number of Dow stocks that fell: 30 (out of 30)
-Worst Dow stock on a percentage basis: Alcoa (AA), down 9.26% to $12.94
-Best-performing Dow stock on a percentage basis: McDonald's (MCD), down 1.47% to $82.48
-Percentage of stocks that fell on the New York Stock Exchange: 91
-Percentage of stocks that fell on the Nasdaq: 91
-Oil prices: Down $5.49, or 5.97%, to $86.44 (4 p.m. ET)
-Gold prices: Down $12.60, or 0.76%, to $1,650.80 (4 p.m. ET)
As for sectors of the market, the downturn was just as evident:
-Banks: Dow Jones U.S. Banks Index (^DJUSBK), down 10.85 points, or 5.52%, to 185.72
-Semiconductors: Philadelphia Stock Exchange Semiconductor Index (^SOX), down 22.07 points, or 5.82%, to 357.32
-Computer hardware: Amex Computer Hardware Index (^HWI), down 17.25 points, or 5.14%, to 318.14
-Transportation: Dow Jones Transportation Average (^DJT), down 255.44 points, or 5.14%, to 4711.74
-Retail: S&P Retail Index (^RLX), down 23.04 points, or 4.47%, to 492.68
-Homebuilders: Philadelphia Stock Exchange Housing Sector Index (^HGX), down 5.50 points, or 5.70%, to 90.95
-Energy: Amex Oil Index (^XOI), down 83.91 points, or 6.79%, to 1151.53
-Biotechnology: Amex Biotechnology Index (^BTK), down 135.86 points, or 10.61%, to 1144.93
-Drug companies: Amex Pharmaceutical Index (^DRG), down 12.49 points, or 3.98%, to 301.63
Here's how a few widely held tech stocks fared (this will probably look familiar):
-Apple (AAPL): Down $15.20, or 3.87%, to $377.37
-Microsoft (MSFT) Down 98 cents, or 3.64%, to $25.94
-Cisco (CSCO) Down 67 cents, or 4.33%, to $14.82
So now what? Here's one idea, albeit complex, that appears to have been working lately: An ETF For Our Troubled Age: Double-Long Gold, Double-Short Stocks. Certainly not for everyone, but it's a good read.
Selling was widespread on Wall Street, and investors struggled to find safety. Everywhere you turned, almost regardless of stock, sector or asset class, the direction was downward. The Dow is now lower by 1.67% for the year, according to data from Dow Jones Indexes, and is in a correction owing to a close that's 10% under its recent high.
Here's a quick look at some of the key numbers at the end of what was a brutal day in New York trading:
-Dow Jones Industrial Average (^DJI): Down 512.76 points, or 4.31%, to 11,383.68
-S&P 500 (^GSPC): Down 60.27 points, or 4.78%, to 1200.07
-Nasdaq Composite (^IXIC): Down 136.68 points, or 5.08%, to 2556.39
-Russell 2000 (^RUT): Down 45.98 points, or 5.95%, to 726.80
-S&P 500 Volatility Index (^VIX): Up 8.28, or 35.41%, to 31.66
-Number of Dow stocks that fell: 30 (out of 30)
-Worst Dow stock on a percentage basis: Alcoa (AA), down 9.26% to $12.94
-Best-performing Dow stock on a percentage basis: McDonald's (MCD), down 1.47% to $82.48
-Percentage of stocks that fell on the New York Stock Exchange: 91
-Percentage of stocks that fell on the Nasdaq: 91
-Oil prices: Down $5.49, or 5.97%, to $86.44 (4 p.m. ET)
-Gold prices: Down $12.60, or 0.76%, to $1,650.80 (4 p.m. ET)
As for sectors of the market, the downturn was just as evident:
-Banks: Dow Jones U.S. Banks Index (^DJUSBK), down 10.85 points, or 5.52%, to 185.72
-Semiconductors: Philadelphia Stock Exchange Semiconductor Index (^SOX), down 22.07 points, or 5.82%, to 357.32
-Computer hardware: Amex Computer Hardware Index (^HWI), down 17.25 points, or 5.14%, to 318.14
-Transportation: Dow Jones Transportation Average (^DJT), down 255.44 points, or 5.14%, to 4711.74
-Retail: S&P Retail Index (^RLX), down 23.04 points, or 4.47%, to 492.68
-Homebuilders: Philadelphia Stock Exchange Housing Sector Index (^HGX), down 5.50 points, or 5.70%, to 90.95
-Energy: Amex Oil Index (^XOI), down 83.91 points, or 6.79%, to 1151.53
-Biotechnology: Amex Biotechnology Index (^BTK), down 135.86 points, or 10.61%, to 1144.93
-Drug companies: Amex Pharmaceutical Index (^DRG), down 12.49 points, or 3.98%, to 301.63
Here's how a few widely held tech stocks fared (this will probably look familiar):
-Apple (AAPL): Down $15.20, or 3.87%, to $377.37
-Microsoft (MSFT) Down 98 cents, or 3.64%, to $25.94
-Cisco (CSCO) Down 67 cents, or 4.33%, to $14.82
So now what? Here's one idea, albeit complex, that appears to have been working lately: An ETF For Our Troubled Age: Double-Long Gold, Double-Short Stocks. Certainly not for everyone, but it's a good read.
2) Jobless claims edge down last week-From Reuters
New claims for unemployment benefits were little changed last week, a government report showed on Thursday, pointing to a marginal improvement in the labor market.
Initial claims for state unemployment benefits nudged down 1,000 to a seasonally adjusted 400,000, the Labor Department said.
Economists polled by Reuters had forecast claims rising to 405,000. The prior week's figure was revised up to 401,000 from the previously reported 398,000.
The claims data falls outside the survey period for the government's closely monitored employment report for July, which is scheduled for release on Friday.
Nonfarm payrolls likely increased 85,000 last month, according to a Reuters survey, after rising only 18,000 in June. The unemployment rate is expected to hold steady at 9.2 percent.
The labor market is being anxiously watched for signs whether the economy will regain speed after growth stalled in the first half of this year. Gross domestic product grew at an annual pace of 1.3 percent in the second quarter after a negligible 0.4 percent rate in the January-March period.
Data so far show the anemic growth pace persisted early in the third quarter, with manufacturing activity hitting a two-year low in July and the services sector expanding at its slowest pace in nearly 1-1/2 years.
Jobless claims are hovering around 400,000 and need to decisively break beneath that level to signal a sustainable improvement in the labor market.
A Labor Department official said there was nothing unusual in the data, adding there was no indication that a partial shutdown of the Federal Aviation Administration had affected last week's claims.
An impasse in Congress over the funding of the FAA has halted airport construction and inspections programs employing about 74,000 workers.
The four-week moving average of claims, considered a better measure of labor market trends, fell 6,750 to 407,750-the lowest since mid-April.
The number of people still receiving benefits under regular state programs after an initial week of aid rose 10,000 to 3.73 million in the week ended July 23.
The number of Americans on emergency unemployment benefits increased 12,193 to 3.18 million in the week ended July 16, the latest week for which data is available.
A total of 7.57 million people were claiming unemployment benefits during that period under all programs, down 75,192 from the prior week.
3) Italy's Woes Weigh on Europe-From The Wall Street Journal
Italian Prime Minister Silvio Berlusconi resisted calls for a swift economic overhaul, heightening worries that the world's eighth-largest economy is sliding into the sort of debt distress that has laid low its smaller European neighbors.
Instead, Mr. Berlusconi blamed global market turbulence for the current spotlight on Italy. Meanwhile, José Manuel Barroso, the president of the European Commission, the European Union's executive arm, released a blistering statement calling the weakening bond prices of Spain and Italy "a cause of deep concern" and urging governments to signal "resolve to address the sovereign debt crisis with the means commensurate with the gravity of the situation."
Meanwhile, Japan and Switzerland took action to hold down the rise of their currencies, where investors for months have been seeking refuge from financial-market turmoil. Tokyo intervened Thursday morning in markets to stem the rise of the yen against the dollar, hoping to preserve modest economic growth that is threatened by a soaring currency undermining exporters. On Wednesday, the Swiss National Bank cut interest rates to nearly zero and pledged to pump billions of newly minted francs into markets, calling its currency "massively overvalued."
Just two weeks after Europe's leaders agreed to a long-awaited second bailout for Greece—considered the Continent's sick man for more than a year—investors are now turning their attention to Italy, the euro-zone's third-largest economy. Italy's debt as a proportion of economic output is second only to Greece's in Europe, and has been plagued by slow growth for more than a decade.
By the end of trading on Wednesday, the yield on 10-year Italian bonds stood at 6.07%. That makes it more expensive for Italy to borrow money, with investors demanding a premium of 3.66 percentage points over benchmark German bonds. Borrowing costs in Spain—long considered the next most vulnerable euro-zone economy after Greece, Portugal and Ireland, which have already received official bailouts—also continued to rise, with the yield on 10-year Spanish bonds closing at 6.23%.
Making things worse are signs that even Europe's stronger economies—Germany, France and the Netherlands—might be headed for a bout of weakness. After expanding at an annualized pace of more than 3% in the first quarter, the euro zone is estimated to have grown at less than half that in the second. Purchasing-manager reports for July suggest euro-area manufacturing was broadly flat to start the third quarter.
Even Germany's manufacturing purchasing managers' index fell to a two-year low last month. That is far from double-dip territory, but it means Europe's largest economy will have to grow well above historic norms to keep the euro bloc chugging along.
Lower growth makes it harder for heavily indebted economies to escape their debt burdens.
Hints that the weakness is starting to affect the euro zone's hitherto stronger economies will heighten the dilemma facing the European Central Bank, which holds a regular meeting Thursday and has begun tightening policy to make sure it keeps inflation in check.
Many had hoped Mr. Berlusconi would show more resolve on Wednesday in his speech to Parliament. Economists and investors have called on the Italian government to show new efforts to revive growth, which is hampered by tight labor laws, high taxes and crippling bureaucracy.
Over the past few days, Italian business leaders had called for a further strengthening of a €40 billion ($57 billion) deficit-busting plan that Parliament approved two weeks ago. Taking a strong stand, some said, would also appease market concerns over the cohesion of the Italian government, which has been put into doubt over reports that Finance Minister Giulio Tremonti might resign—something he has so far denied.
"We have a huge problem of credibility in the country. We need leadership capable of restoring cohesion," Sergio Marchionne, chief executive of Fiat SpA and Chrysler LLC, said in an interview with Italian news agency ANSA before the premier's speech.
Mr. Berlusconi said the rise in Italy's borrowing costs was due to market tensions related to the drawn-out debt talks in Washington, and said markets were failing to consider the high level of savings among Italian families and the strength of local banks, which he said had weathered the financial crisis better than their European peers.
"As often happens in a crisis of confidence, the markets are not correctly valuing the merit of our credit," Mr. Berlusconi said. "Our economy is healthy. The country is economically and financially solid."
The address "did not contain anything specific to turn market sentiment decisively," said Fabio Fois, an analyst with Barclay's Capital. "The government should reopen the reform agenda, as markets have been increasingly focused on the prospects of the real economy."
One reason Italy, which for months had been shielded from the debt crisis, has taken center stage is that it is generally considered too large for the rest of Europe to bail out.
Already, the means for future bailouts are in doubt. The euro zone has for months planned to expand its main rescue fund to €440 billion in lending capacity from around €250 billion, but that measure requires ratification by national parliaments—unlikely before fall. An agreement in July by national leaders to imbue the fund with new powers to intervene and to lend to countries not at the brink of bankruptcy hasn't been put into action either.
Quote of the Day from Dave Ramsey.com:
Today, the greatest single source of wealth is between your ears. Today, wealth is contained in brainpower, not brute power. — Brian Tracy
Wednesday, August 3, 2011
Financial Headline News for Wednesday 8/3
Finally after a seven day losing streak stocks rallied today in heavy trading.
ADP reported this morning 114,000 private sector jobs created in July. However take this number with a grain of salt since they were so off from reality in their June figure. Let's wait for the official number on Friday from the government.
More bad news on the economy as service firms expanded at the slowest pace in 17 months.
Here are the top financial stories of the day:
1) S&P ends string of losses on tech rebound-From Reuters
The S&P 500 index rose on Wednesday, snapping a seven-day losing streak, but worries about the economy kept investors jittery and trading volatile.
Trading was the busiest since mid-March, with more than 10 billion shares changing hands as the S&P dipped to a new low for 2011 before storming back to finish higher.
Technology shares gained after days of hefty selling that briefly pushed the Nasdaq into negative territory for 2011 before the composite index ended with solid gains.
But many investors view the gains as a short-term rebound after the S&P's 6.8 percent decline over the past seven days.
"We are not in a bear market psychology yet, but we are definitely in a solid correction psychology," said James Dailey, portfolio manager of Team Asset Strategy Fund in Harrisburg, Pennsylvania.
Recent poor figures on consumer spending and factory activity underline the economy's precarious position after a weak first half of the year. That, along with the festering European debt crisis, is likely to keep buyers cautious.
"The events in Europe and the U.S. debt ceiling issues that have been overshadowing the weak underlying fundamentals are gone now and investors are starting to realize that we are not in a good situation," Dailey said.
The S&P technology index (^GSPT - News) was up 1.2 percent while energy stocks were the hardest hit.
The S&P energy sector (SNP:^GSPE - News) fell 0.6 percent.
The Dow Jones industrial average (DJI:^DJI - News) was up 29.82 points, or 0.25 percent, at 11,896.44. The Standard & Poor's 500 Index (^SPX - News) was up 6.29 points, or 0.50 percent, at 1,260.34. The Nasdaq Composite Index (Nasdaq:^IXIC - News) was up 23.83 points, or 0.89 percent, at 2,693.07.
Helping the Nasdaq, Research In Motion (Toronto:RIM.TO - News; NasdaqGS:RIMM - News) shares rose 4.9 percent to $25.33 after unveiling two new and powerful versions of its touchscreen BlackBerry Torch, including an all-touch model, as it seeks to regain ground lost to Apple and Google.
MasterCard Inc (NYSE:MA - News) shares also jumped 13.4 percent to $338.47 after the company reported second-quarter profit that rose 33 percent.
Traders said some buyers came into the market after comments from former Federal Reserve Vice Chairman Donald Kohn, who told the Wall Street Journal the Fed could consider a new round of stimulus to help the economy.
Driving the early losses was data showing the pace of growth in the U.S. services sector fell in July to its lowest since February 2010, while new U.S. factory orders fell in June, pulled down by weak demand for transportation equipment.
The news followed weaker-than-expected manufacturing data earlier this week, creating more angst about a pullback in the recovery.
Some 10.5 billion shares changed hands on the New York Stock Exchange, NYSE Amex and Nasdaq, the highest since mid-March and above the daily average of around 7.48 billion.
On the NYSE, advancers beat decliners 1,725 to 1,274.
On the Nasdaq, advancers outpaced decliners 1,511 to 1,054.
2) Private-Sector Jobs Increase by 114,000- From The Wall Street Journal
Private businesses added more jobs than expected in July, according to a report released Wednesday, but similarly strong figures last month raised hopes that were dashed when the government's official data were released.
Private-sector jobs in the U.S. rose by a modest 114,000 last month, according to a national employment report published by payroll giant Automatic Data Processing Inc. and consultancy Macroeconomic Advisers.
Economists surveyed by Dow Jones Newswires had expected ADP would report a gain of 105,000 for July. The June data were revised to show a rise of 145,000 versus the 157,000 first reported on July 7.
The strong June ADP jobs number had caused investors and economists to hope the U.S. labor markets had turned the corner toward stronger hiring. Stocks rose on the news, and many forecasters lifted their nonfarm-payrolls forecast after the release of the June number.
Instead, the Labor Department on July 8 said only 18,000 new jobs were added in June and the unemployment rate increased to 9.2% from 9.1%.
The ADP survey tallies only private-sector jobs, while the Bureau of Labor Statistics' nonfarm-payroll data, to be released Friday, include government workers.
Economists surveyed by Dow Jones Newswires expect total nonfarm payrolls rose by only 75,000 in July, with layoffs expected in the state- and local-government sectors. The July unemployment rate is expected to remain at 9.2%.
The latest ADP report showed businesses with 500 or more employees added 9,000 new employees in July, while medium-size businesses added 47,000 workers and small businesses, with fewer than 50 employees, hired 58,000 new workers.
Service-sector jobs increased by 121,000 in July, but factory jobs fell by 1,000.
ADP, of Roseland, N.J., says it processes payments of one in six U.S. workers, while St,. Louis-based Macroeconomic Advisers is an economic-consulting firm.
Other job-related news released Wednesday was mixed.
Layoffs jumped in July, according to Challenger Gray & Christmas. The outplacement firm said an unexpected burst in private-sector downsizing pushed the number of announced job cuts to a 16-month high of 66,414 in July, 60% above the June number and the highest number since March 2010.
The report said the July job-cut surge was dominated by a handful of private-sector employers, including Merck & Co., Borders Group Inc., Cisco Systems Inc., Lockheed Martin Corp. and Boston Scientific Corp. The job cuts from these five companies accounted for 57% of the July total.
On a more positive note, TrimTabs Investment Research estimated the that economy added 161,000 jobs in July, up from 128,000 estimated in June.
3) Services firms expand at slowest pace in 17 months-From the AP
The U.S. service firms, which employ nearly 90 percent of the country's work force, experienced their weakest growth in 17 months in July. The report confirms other data that show the economy is struggling two years after the recession ended.
The Institute for Supply Management said Wednesday its index for services companies fell to 52.7, from 53.3 in June. Any reading above 50 indicates expansion.
The ISM's index covers a range of service industries, including health care, retail, and financial services. The index reached a five-year high of 59.7 in February, but has fallen since then.
Growth slowed to less than 1 percent in the first six months of this year, the government said Friday.
Consumer spending, which fuels 70 percent of economic activity, fell 0.2 percent in June. It was the first decline since September 2009.
Less spending has hurt service-sector companies such as restaurants, retailers, and amusement parks.
As the economy has slowed, so has hiring. Employers added only 18,000 jobs in June, the fewest in nine months. The unemployment rate rose to 9.2 percent.
The government will release the July jobs report Friday. Economists predict only 90,000 jobs were added last month and the unemployment rate was unchanged. The economy needs roughly three times that many jobs to reduce the unemployment rate.
Much of the slowdown stems from a spike in gas prices since last year. That reduces the amount of money consumers can spend on discretionary goods such as furniture, electronics, and appliances. Spending on those categories has fallen for three straight months.
Spending fell largely because most Americans aren't seeing any pay increases. Incomes rose only 0.1 percent in June, the department said, the smallest gain since September. Americans are also saving more, boosting the savings rate to 5.4 percent.
Manufacturing output has also been hit by supply disruptions stemming from Japan's March 11 earthquake, which caused auto companies in the U.S. to reduce production.
Many analysts had predicted the economy would turn around in the second half of the year once those temporary factors began to fade.
But the ISM's manufacturing report, released Monday, showed the economy is still deteriorating. The manufacturing index fell to 50.9, its lowest level in two years.
Most economists have reduced their growth forecasts. Paul Dales, an economist at Capital Economic, now expects growth of only 2 percent in the second half of the year, down from an earlier forecast of 2.5 percent.
Quote of the Day from Dave Ramsey.com:
ADP reported this morning 114,000 private sector jobs created in July. However take this number with a grain of salt since they were so off from reality in their June figure. Let's wait for the official number on Friday from the government.
More bad news on the economy as service firms expanded at the slowest pace in 17 months.
Here are the top financial stories of the day:
1) S&P ends string of losses on tech rebound-From Reuters
The S&P 500 index rose on Wednesday, snapping a seven-day losing streak, but worries about the economy kept investors jittery and trading volatile.
Trading was the busiest since mid-March, with more than 10 billion shares changing hands as the S&P dipped to a new low for 2011 before storming back to finish higher.
Technology shares gained after days of hefty selling that briefly pushed the Nasdaq into negative territory for 2011 before the composite index ended with solid gains.
But many investors view the gains as a short-term rebound after the S&P's 6.8 percent decline over the past seven days.
"We are not in a bear market psychology yet, but we are definitely in a solid correction psychology," said James Dailey, portfolio manager of Team Asset Strategy Fund in Harrisburg, Pennsylvania.
Recent poor figures on consumer spending and factory activity underline the economy's precarious position after a weak first half of the year. That, along with the festering European debt crisis, is likely to keep buyers cautious.
"The events in Europe and the U.S. debt ceiling issues that have been overshadowing the weak underlying fundamentals are gone now and investors are starting to realize that we are not in a good situation," Dailey said.
The S&P technology index (^GSPT - News) was up 1.2 percent while energy stocks were the hardest hit.
The S&P energy sector (SNP:^GSPE - News) fell 0.6 percent.
The Dow Jones industrial average (DJI:^DJI - News) was up 29.82 points, or 0.25 percent, at 11,896.44. The Standard & Poor's 500 Index (^SPX - News) was up 6.29 points, or 0.50 percent, at 1,260.34. The Nasdaq Composite Index (Nasdaq:^IXIC - News) was up 23.83 points, or 0.89 percent, at 2,693.07.
Helping the Nasdaq, Research In Motion (Toronto:RIM.TO - News; NasdaqGS:RIMM - News) shares rose 4.9 percent to $25.33 after unveiling two new and powerful versions of its touchscreen BlackBerry Torch, including an all-touch model, as it seeks to regain ground lost to Apple and Google.
MasterCard Inc (NYSE:MA - News) shares also jumped 13.4 percent to $338.47 after the company reported second-quarter profit that rose 33 percent.
Traders said some buyers came into the market after comments from former Federal Reserve Vice Chairman Donald Kohn, who told the Wall Street Journal the Fed could consider a new round of stimulus to help the economy.
Driving the early losses was data showing the pace of growth in the U.S. services sector fell in July to its lowest since February 2010, while new U.S. factory orders fell in June, pulled down by weak demand for transportation equipment.
The news followed weaker-than-expected manufacturing data earlier this week, creating more angst about a pullback in the recovery.
Some 10.5 billion shares changed hands on the New York Stock Exchange, NYSE Amex and Nasdaq, the highest since mid-March and above the daily average of around 7.48 billion.
On the NYSE, advancers beat decliners 1,725 to 1,274.
On the Nasdaq, advancers outpaced decliners 1,511 to 1,054.
2) Private-Sector Jobs Increase by 114,000- From The Wall Street Journal
Private businesses added more jobs than expected in July, according to a report released Wednesday, but similarly strong figures last month raised hopes that were dashed when the government's official data were released.
Private-sector jobs in the U.S. rose by a modest 114,000 last month, according to a national employment report published by payroll giant Automatic Data Processing Inc. and consultancy Macroeconomic Advisers.
Economists surveyed by Dow Jones Newswires had expected ADP would report a gain of 105,000 for July. The June data were revised to show a rise of 145,000 versus the 157,000 first reported on July 7.
The strong June ADP jobs number had caused investors and economists to hope the U.S. labor markets had turned the corner toward stronger hiring. Stocks rose on the news, and many forecasters lifted their nonfarm-payrolls forecast after the release of the June number.
Instead, the Labor Department on July 8 said only 18,000 new jobs were added in June and the unemployment rate increased to 9.2% from 9.1%.
The ADP survey tallies only private-sector jobs, while the Bureau of Labor Statistics' nonfarm-payroll data, to be released Friday, include government workers.
Economists surveyed by Dow Jones Newswires expect total nonfarm payrolls rose by only 75,000 in July, with layoffs expected in the state- and local-government sectors. The July unemployment rate is expected to remain at 9.2%.
The latest ADP report showed businesses with 500 or more employees added 9,000 new employees in July, while medium-size businesses added 47,000 workers and small businesses, with fewer than 50 employees, hired 58,000 new workers.
Service-sector jobs increased by 121,000 in July, but factory jobs fell by 1,000.
ADP, of Roseland, N.J., says it processes payments of one in six U.S. workers, while St,. Louis-based Macroeconomic Advisers is an economic-consulting firm.
Other job-related news released Wednesday was mixed.
Layoffs jumped in July, according to Challenger Gray & Christmas. The outplacement firm said an unexpected burst in private-sector downsizing pushed the number of announced job cuts to a 16-month high of 66,414 in July, 60% above the June number and the highest number since March 2010.
The report said the July job-cut surge was dominated by a handful of private-sector employers, including Merck & Co., Borders Group Inc., Cisco Systems Inc., Lockheed Martin Corp. and Boston Scientific Corp. The job cuts from these five companies accounted for 57% of the July total.
On a more positive note, TrimTabs Investment Research estimated the that economy added 161,000 jobs in July, up from 128,000 estimated in June.
3) Services firms expand at slowest pace in 17 months-From the AP
The U.S. service firms, which employ nearly 90 percent of the country's work force, experienced their weakest growth in 17 months in July. The report confirms other data that show the economy is struggling two years after the recession ended.
The Institute for Supply Management said Wednesday its index for services companies fell to 52.7, from 53.3 in June. Any reading above 50 indicates expansion.
The ISM's index covers a range of service industries, including health care, retail, and financial services. The index reached a five-year high of 59.7 in February, but has fallen since then.
Growth slowed to less than 1 percent in the first six months of this year, the government said Friday.
Consumer spending, which fuels 70 percent of economic activity, fell 0.2 percent in June. It was the first decline since September 2009.
Less spending has hurt service-sector companies such as restaurants, retailers, and amusement parks.
As the economy has slowed, so has hiring. Employers added only 18,000 jobs in June, the fewest in nine months. The unemployment rate rose to 9.2 percent.
The government will release the July jobs report Friday. Economists predict only 90,000 jobs were added last month and the unemployment rate was unchanged. The economy needs roughly three times that many jobs to reduce the unemployment rate.
Much of the slowdown stems from a spike in gas prices since last year. That reduces the amount of money consumers can spend on discretionary goods such as furniture, electronics, and appliances. Spending on those categories has fallen for three straight months.
Spending fell largely because most Americans aren't seeing any pay increases. Incomes rose only 0.1 percent in June, the department said, the smallest gain since September. Americans are also saving more, boosting the savings rate to 5.4 percent.
Manufacturing output has also been hit by supply disruptions stemming from Japan's March 11 earthquake, which caused auto companies in the U.S. to reduce production.
Many analysts had predicted the economy would turn around in the second half of the year once those temporary factors began to fade.
But the ISM's manufacturing report, released Monday, showed the economy is still deteriorating. The manufacturing index fell to 50.9, its lowest level in two years.
Most economists have reduced their growth forecasts. Paul Dales, an economist at Capital Economic, now expects growth of only 2 percent in the second half of the year, down from an earlier forecast of 2.5 percent.
Quote of the Day from Dave Ramsey.com:
Success is how high you bounce when you hit bottom. — George S. Patton
Tuesday, August 2, 2011
Financial Headline News for Tuesday 8/2
The blue-chip index had its eighth consecutive day of decline, which is the longest since October 2008. It has lost more than 700 points during the skid, dating back to July 22. What a surprise since QE2 ended on June 30th which was artificially inflating stock prices all along.
Another day another piece of bad economic news. Today the Commerce Department released consumer spending data which showed a drop to its lowest level since September 2009.
Everyday seems more and more likely a double dip recession is under way.
Here are the top financial stories of the day:
1) Stocks now down for year as economic concerns grow-From the AP
A sell-off is erasing all of the year's gains in the stock market.
The Standard & Poor's 500 lost 2.6 percent Tuesday as investors grew increasingly concerned about the economy. The benchmark index is now at its lowest point of the year.
A report that consumers cut their spending in June for the first time in two years added to a series of weak economic indicators have pushed stocks lower for seven straight days.
The S&P is closing down 33 points to 1,254. The Dow Jones industrial average is down 266, or 2.2 percent, to 11,867. The Nasdaq is down 75, or 2.8 percent, to 2,669.
Four stocks fell for every one that rose on the New York Stock Exchange. Volume was higher than average at 5.3 billion shares.
2) Americans cut spending for first time in 20 months-From the AP
Americans cut back on their spending in June for the first time in nearly two years and their incomes grew by the smallest amount in nine months, a troubling sign for an economy that is barely growing.
Consumer spending dropped 0.2 percent in June, the Commerce Department said Tuesday. Excluding falling prices for such items as energy and food, consumer spending would have been unchanged in June.
Incomes rose 0.1 percent. It was the weakest growth in income since September, reflecting anemic hiring this spring.
Stock futures were trading lower after the report was released.
High gas prices and unemployment have squeezed household budgets this spring, leading to tepid overall economic growth in the April-June quarter. The economy expanded at an annual rate of 1.3 percent in the second quarter after only 0.4 percent growth in the first three months of this year. The combined growth for the first six months of this year was the worst since the recession ended two years ago.
Many Americans are cutting back on purchases of cars, furniture, appliances and electronics. Consumer spending is closely watched because it accounts for 70 percent of economic activity.
Employers have responded by reducing hiring. The economy added just 18,000 net jobs in June, the fewest in nine months. The unemployment rate rose to 9.2 percent, the highest level this year.
The government issues its July employment report on Friday.
Declining growth and rising unemployment have raised concerns that the country could fall back into a recession.
Many analysts are still hopeful that growth will rebound in the second half of the year. They expect auto production and sales to pick up once supply chain disruptions ease. Many auto dealers reported shortages of popular models after Japan's March 11 earthquake limited production of parts. That cut into auto sales.
But the turnaround may not come for a while. Manufacturers had their weakest growth in two years in July, according to the Institute for Supply Management.
The private trade group of purchasing executives said Monday that its index of manufacturing activity fell to 50.9 percent in July from 55.3 percent in June. The reading was the lowest since July 2009 — one month after the recession officially ended.
And gas prices remain high, even after coming down from their peak of nearly $4 a gallon in early May. The average price for a gallon was $3.70 on Tuesday — 14 cents higher than a month ago and almost a dollar more than the same month last year.
Some economists have begun to trim their forecasts for the second half of the year. Economists at Capital Economics said they had cut their outlook for second half growth to 2 percent, down from a previous forecast of 2.5 percent growth in the second half of this year.
3) Signs of a Double-Dip Have Emerged: Meredith Whitney-From CNBC
Analyst Meredith Whitney said she's seeing signs of a double-dip as cities and towns continue to get squeezed by cuts in federal funding.
This is certain to get worse as Congress and President Obama try to work out a deal on the debt ceiling, she said.
"I never envisioned we would come to this point where Congress couldn't agree on raising the debt ceiling or we'd be in this dire situation politically," the head of Meredith Whitney Advisory Group told CNBC Monday.
"Our GDP number on Friday was an indication that states and local governments, which make up 12 percent of GDP, are really pulling back," she added. "We're certainly in a double dip on housing," which is putting "enormous pressure on the economy."
The states most tied to housing have had to cut social programs and raise taxes, which, in turn, pushes home values down even further, she said. Those states with "clean" balance sheets in areas she calls "the emerging markets of the United States" attract more business, have more tax surpluses and don't have to raise taxes.
Some states are in bad shape because they relied so heavily on federal stimulus money, which ran out at the end of June, she said. Forty-six states have passed balanced budgets that include big cuts.
"This affects the macro environment, this affects employment, this affects spending, this affects every corporation within the United States because so many corporations are reliant on contracts from state and local governments," Whitney said. "So this [debt crisis] situation in D.C. exacerbates it, but the states are in a bad situation even without the situation in D.C.
Another reason she is predicting a double-dip is layoffs, citing 50,000 jobs cut just on Wall Street, with thousands more by nonfinancial firms including Merck (NYSE: mrk).
"All industries will [cut staff] and then it will get really bad when the state and local governments really start to impact the corporations" when they are forced to cut back on issuing contracts, she said.
Whitney, who predicted a wave of municipal defaults earlier this year worth upwards of $100 billion, stood by her predictions.
Her call on defaults "is playing out exactly as I thought it would," she said, but she stressed that "muni bond defaults are just a product of overspending and overleveraging the system. The call is so much bigger than what happens in the municipal bond world."
Quote of the Day from Dave Ramsey.com:
Another day another piece of bad economic news. Today the Commerce Department released consumer spending data which showed a drop to its lowest level since September 2009.
Everyday seems more and more likely a double dip recession is under way.
Here are the top financial stories of the day:
1) Stocks now down for year as economic concerns grow-From the AP
A sell-off is erasing all of the year's gains in the stock market.
The Standard & Poor's 500 lost 2.6 percent Tuesday as investors grew increasingly concerned about the economy. The benchmark index is now at its lowest point of the year.
A report that consumers cut their spending in June for the first time in two years added to a series of weak economic indicators have pushed stocks lower for seven straight days.
The S&P is closing down 33 points to 1,254. The Dow Jones industrial average is down 266, or 2.2 percent, to 11,867. The Nasdaq is down 75, or 2.8 percent, to 2,669.
Four stocks fell for every one that rose on the New York Stock Exchange. Volume was higher than average at 5.3 billion shares.
2) Americans cut spending for first time in 20 months-From the AP
Americans cut back on their spending in June for the first time in nearly two years and their incomes grew by the smallest amount in nine months, a troubling sign for an economy that is barely growing.
3) Signs of a Double-Dip Have Emerged: Meredith Whitney-From CNBC
Analyst Meredith Whitney said she's seeing signs of a double-dip as cities and towns continue to get squeezed by cuts in federal funding.
This is certain to get worse as Congress and President Obama try to work out a deal on the debt ceiling, she said.
"I never envisioned we would come to this point where Congress couldn't agree on raising the debt ceiling or we'd be in this dire situation politically," the head of Meredith Whitney Advisory Group told CNBC Monday.
"Our GDP number on Friday was an indication that states and local governments, which make up 12 percent of GDP, are really pulling back," she added. "We're certainly in a double dip on housing," which is putting "enormous pressure on the economy."
The states most tied to housing have had to cut social programs and raise taxes, which, in turn, pushes home values down even further, she said. Those states with "clean" balance sheets in areas she calls "the emerging markets of the United States" attract more business, have more tax surpluses and don't have to raise taxes.
Some states are in bad shape because they relied so heavily on federal stimulus money, which ran out at the end of June, she said. Forty-six states have passed balanced budgets that include big cuts.
"This affects the macro environment, this affects employment, this affects spending, this affects every corporation within the United States because so many corporations are reliant on contracts from state and local governments," Whitney said. "So this [debt crisis] situation in D.C. exacerbates it, but the states are in a bad situation even without the situation in D.C.
Another reason she is predicting a double-dip is layoffs, citing 50,000 jobs cut just on Wall Street, with thousands more by nonfinancial firms including Merck (NYSE: mrk).
"All industries will [cut staff] and then it will get really bad when the state and local governments really start to impact the corporations" when they are forced to cut back on issuing contracts, she said.
Whitney, who predicted a wave of municipal defaults earlier this year worth upwards of $100 billion, stood by her predictions.
Her call on defaults "is playing out exactly as I thought it would," she said, but she stressed that "muni bond defaults are just a product of overspending and overleveraging the system. The call is so much bigger than what happens in the municipal bond world."
Quote of the Day from Dave Ramsey.com:
America is unique because it offers you an economic ladder to climb. And here's what's exciting: It is the bottom of the ladder that is crowded, not the top. — Jim Rohn
Monday, August 1, 2011
Financial Headline News for Monday 8/1
The Dow was a wild roller coaster today starting up over 100, going down over 100 before finally settling at minus 10.75. The other sectors took a similar path to all end in the negative also.
Manufacturing activity barely grew in July, falling to lowest level since just after recession.
Who would have thought that we could learn how to run an economy from our friends to the North-Canada. If the US instituted some of these things mentioned in the article we would be on the path back to prosperity.
Here are the top financial stories of the day:
1) Concerns about the economy end early Dow rally-From the AP
Leave it to the economy to stop a debt-deal rally.
The Dow Jones industrial average started the day up nearly 140 points after President Barack Obama and congressional leaders said Sunday that a deal had been reached to raise the nation's borrowing limit and avoid a possible debt default.
But another sign that the economy has slowed erased those early gains and took the Dow down as many as 145 points by midday.
The Dow ended the day with a loss of 10.75 points. It was the seventh day of declines for the blue-chip index.
Many investors remained concerned about the direction of the economy. A report from the Institute of Supply Management said that U.S. manufacturing barely grew last month. And on Friday, the government said that so far this year the economy has grown at its slowest pace since the recession ended in June 2009.
The manufacturing index was the first major economic report released in July. Analysts had expected it to show that the economy was expanding.
"This was a shock to the market," said Phil Orlando, chief strategist at Federated Investors. "It clearly offset the emotional strength that we saw in the open from this tentative budget compromise."
Federal Reserve Chairman Ben Bernanke and many economists have said that the U.S. economy would gain momentum in the second half of the year. But the manufacturing report, sluggish overall growth and concern about spending cuts included in the debt deal have cast doubt on that prediction.
The Dow fell 0.1 percent, to 12,132.49. The broader Standard and Poor's 500 index lost 5.34, or 0.4 percent, to 1,286.94. The Nasdaq composite fell 11.77, or 0.4 percent, to 2,744.61.
The S&P index traded below its 200-day moving average of 1,280. Many traders use moving averages as benchmarks for when to buy and sell. Orlando said the S&P could fall to 1,250 or lower over the next few days as investors begin to doubt the strength of the economy.
Health care stocks fell nearly 2 percent, the most of the 10 company groups in the S&P 500 index. United
HealthGroup Inc., Aetna Inc., and St. Jude Medical Inc. fell more than 2.5 percent after the government said it plans to cut Medicare reimbursement rates 11 percent. The cuts are unrelated to the debt deal.
Bond yields fell to the lowest level of the year as investors moved into safer assets. The yield on the 10-year Treasury note fell to 2.75 percent from 2.80 percent late Friday.
The manufacturing report led to a worldwide pullback from riskier assets. The Euro Stoxx 50, an index that tracks blue chip companies in countries that use the euro, fell nearly 3 percent. Oil futures dropped 1 percent to just below $95 a barrel. And gold made up its early losses to remain near $1,625 an ounce.
The latest signs of weakness in the U.S. economy also pushed the dollar lower against the Japanese yen and the Swiss franc, two currencies that traders see as relatively safe bets. The dollar touched another record low against the franc, and reached a post-World War II low against the yen.
Before the ISM report was released, stocks rose sharply largely because President Obama and
Congressional leaders announced Sunday that they had agreed on a deal to raise the nation's borrowing limit ahead of Tuesday's deadline. Investors have been worried that the U.S. might default if a deal wasn't reached. The federal government would be unable to pay all of its bills after Tuesday if a law is not signed.
Among them: interest payments on Treasury bonds, salaries of federal employees and Social Security checks to retirees.
The debt agreement would raise the U.S. debt limit by $2.1 trillion. It would also cut at more than $2 trillion in federal spending over 10 years. Under the bill, a new joint committee of Congress would recommend deficit reductions by the end of November that would be put to a vote by Congress by year's end.
But a vote on the measure had not been scheduled in the House or the Senate by the time the market closed.
Many important details about spending cuts and possible tax increases were to be decided by the new committee, which means it could be months before there's clarity on how the deficit will be reduced.
"The debt agreement was a step in the right direction but probably a small step," said Bob Gelfond, the head of MQS Asset Management, a hedge fund based in New York City.
Others remained concerned that the bill would not cut the deficit enough to prevent a downgrade to the U.S. government's top credit rating. Credit rating agencies Standard and Poor's and Moody's declined to comment about the bill's possible impact on their decision-making process.
"This agreement didn't resolve any of the fundamental differences in the direction of spending and revenues that would address our long-term issues," said Kate Warne, the investment strategist at Edward Jones.
Rising and failing shares were roughly even on the New York Stock Exchange. Volume was higher than average at 4.4 billion shares.
2) Manufacturing growth hits lowest level in 2 years-From the AP
A private trade group says manufacturing activity barely grew in July, falling to the weakest level since just after the recession ended.
The Institute for Supply Management, a trade group of purchasing executives, says its index of manufacturing activity fell to 50.9 percent in July from 55.3 percent in June. That's the lowest reading since July 2009, one month after the recession officially ended. Any level above 50 indicates growth.
Stocks fell after the report was released. They had been trading higher ahead of the report, based on expectations that Congress will approve a deal Monday to raise the nation's borrowing limit.
The index topped 60 for four straight months earlier this year. But manufacturing has stumbled in recent months.
3) Why Canada Is Beating America-From the Wall Street Journal
While the U.S. remains mired in debt and slogs through a subpar economic recovery, Canada is moving ahead steadily. Its unemployment rate peaked at a little over 8.5% and is now 7.4%, and there were no bank bailouts. Real GDP growth is expected to be roughly 3% this year.
Now with the first majority government since 2004, and the first Conservative majority since 1993, the country has an opportunity to vault forward. The Conservatives led by Prime Minister Stephen Harper have a chance to build on the reforms begun under previous Liberal governments that Americans can only look at with envy.
Canada's government, for example, has grown smaller over the last 15 years. Total government spending as a share of the economy peaked at a little over 53% in 1993. Through a combination of spending cuts in the 1990s and spending restraint during the 2000s, it declined to a little under 40% of GDP by 2008. (It's currently about 44% due to the recession.)
Reductions in government spending allowed for balanced budgets and the retiring of debt. Federal debt as a share of the Canadian economy was almost halved from nearly 80% to a little over 40% over the same period.
On the federal level, capital gains taxes in Canada were reduced twice and currently stand at 14.5%. A series of cuts to the corporate income tax beginning in 2001 have seen the rate slashed to 15% from 28%.
Many provinces followed suit by reducing both corporate and personal income tax rates.
But the Conservative government faces two challenges: health reform and taxes.
The unavoidable challenge is the country's health-care system. Negotiations to renew federal transfers to the provinces in support of health care begin later this fall.
Canada devotes a relatively high share of its economy to health care without enjoying commensurate outcomes. Of the 28 countries in the Organization for Economic Cooperation and Development (OECD) that have universal access, Canada has the sixth-highest rate of health spending as a share of its economy.
Canadian health care is unique among the OECD countries with universal access in that Canadians alone depend almost exclusively on government for medically-necessary health care. Simply put, health care is dominated by the government in one form or another. Canada prohibits both copayments and private funding for publicly-insured services. Hospitals are for practical purposes owned and operated by government, and over 98% of physician income is from government.
But Canadians' access to care is poor, despite high spending. The country ranks 20th of 22 OECD countries for access to physicians. Canada's national statistical agency recently reported that 6.6% of Canadians (aged 12 or older) indicated being without a doctor and unable to find one. Canada also ranks poorly on access to technology: 17th for CT scanners and MRIs.
Waiting times for treatment continue to worsen. A longstanding survey by the free-market Fraser Institute recently found that the median wait time between general practitioner and treatment had increased to 18.2 weeks (2010) from 9.3 weeks in 1993 when the survey started.
While the United States moves towards greater centralization of health-care regulation, Canada's Conservatives have an opportunity to give the provincial governments more leeway in delivering and financing health care. Allowing the provinces to become laboratories for different methods of health-care delivery and financing while protecting universal access holds the greatest chance for improving health care and controlling costs.
Uncompetitive tax rates, particularly compared to the U.S., are the country's other major challenge.
Canada's Conservative Finance Minister Jim Flaherty has consistently indicated that lowering personal taxes is a priority. In a recent interview he stated that Canada "should be moving toward a flatter personal income tax system."
Canada's personal income tax rates are relatively high and kick in at comparatively low levels of income. For example, Canada's top federal marginal personal income tax rate (29%) applies to income over $128,800 (in Canadian dollars, or U.S. $135,038 as of July 29). Provincial taxes, which are generally higher than in U.S. states, are added on top of the federal rates. The top federal tax rate in the U.S. is 35%—but it applies to income over U.S. $379,150.
The Conservatives have committed to tax relief once the budget is balanced, which is expected toward the end of their current term. To implement meaningful income tax cuts, the Conservative government will also need to be more proactive with spending reductions. As demonstrated in the 1990s by their Liberal Party predecessors, spending reductions now will result in a balanced budget sooner and an opportunity for large-scale tax relief.
Winning a Conservative majority in Canada was no small feat. The question remains what the Conservatives will do with that majority.
Quote of the Day from Dave Ramsey.com:
Manufacturing activity barely grew in July, falling to lowest level since just after recession.
Who would have thought that we could learn how to run an economy from our friends to the North-Canada. If the US instituted some of these things mentioned in the article we would be on the path back to prosperity.
Here are the top financial stories of the day:
1) Concerns about the economy end early Dow rally-From the AP
Leave it to the economy to stop a debt-deal rally.
The Dow Jones industrial average started the day up nearly 140 points after President Barack Obama and congressional leaders said Sunday that a deal had been reached to raise the nation's borrowing limit and avoid a possible debt default.
But another sign that the economy has slowed erased those early gains and took the Dow down as many as 145 points by midday.
The Dow ended the day with a loss of 10.75 points. It was the seventh day of declines for the blue-chip index.
Many investors remained concerned about the direction of the economy. A report from the Institute of Supply Management said that U.S. manufacturing barely grew last month. And on Friday, the government said that so far this year the economy has grown at its slowest pace since the recession ended in June 2009.
The manufacturing index was the first major economic report released in July. Analysts had expected it to show that the economy was expanding.
"This was a shock to the market," said Phil Orlando, chief strategist at Federated Investors. "It clearly offset the emotional strength that we saw in the open from this tentative budget compromise."
Federal Reserve Chairman Ben Bernanke and many economists have said that the U.S. economy would gain momentum in the second half of the year. But the manufacturing report, sluggish overall growth and concern about spending cuts included in the debt deal have cast doubt on that prediction.
The Dow fell 0.1 percent, to 12,132.49. The broader Standard and Poor's 500 index lost 5.34, or 0.4 percent, to 1,286.94. The Nasdaq composite fell 11.77, or 0.4 percent, to 2,744.61.
The S&P index traded below its 200-day moving average of 1,280. Many traders use moving averages as benchmarks for when to buy and sell. Orlando said the S&P could fall to 1,250 or lower over the next few days as investors begin to doubt the strength of the economy.
Health care stocks fell nearly 2 percent, the most of the 10 company groups in the S&P 500 index. United
HealthGroup Inc., Aetna Inc., and St. Jude Medical Inc. fell more than 2.5 percent after the government said it plans to cut Medicare reimbursement rates 11 percent. The cuts are unrelated to the debt deal.
Bond yields fell to the lowest level of the year as investors moved into safer assets. The yield on the 10-year Treasury note fell to 2.75 percent from 2.80 percent late Friday.
The manufacturing report led to a worldwide pullback from riskier assets. The Euro Stoxx 50, an index that tracks blue chip companies in countries that use the euro, fell nearly 3 percent. Oil futures dropped 1 percent to just below $95 a barrel. And gold made up its early losses to remain near $1,625 an ounce.
The latest signs of weakness in the U.S. economy also pushed the dollar lower against the Japanese yen and the Swiss franc, two currencies that traders see as relatively safe bets. The dollar touched another record low against the franc, and reached a post-World War II low against the yen.
Before the ISM report was released, stocks rose sharply largely because President Obama and
Congressional leaders announced Sunday that they had agreed on a deal to raise the nation's borrowing limit ahead of Tuesday's deadline. Investors have been worried that the U.S. might default if a deal wasn't reached. The federal government would be unable to pay all of its bills after Tuesday if a law is not signed.
Among them: interest payments on Treasury bonds, salaries of federal employees and Social Security checks to retirees.
The debt agreement would raise the U.S. debt limit by $2.1 trillion. It would also cut at more than $2 trillion in federal spending over 10 years. Under the bill, a new joint committee of Congress would recommend deficit reductions by the end of November that would be put to a vote by Congress by year's end.
But a vote on the measure had not been scheduled in the House or the Senate by the time the market closed.
Many important details about spending cuts and possible tax increases were to be decided by the new committee, which means it could be months before there's clarity on how the deficit will be reduced.
"The debt agreement was a step in the right direction but probably a small step," said Bob Gelfond, the head of MQS Asset Management, a hedge fund based in New York City.
Others remained concerned that the bill would not cut the deficit enough to prevent a downgrade to the U.S. government's top credit rating. Credit rating agencies Standard and Poor's and Moody's declined to comment about the bill's possible impact on their decision-making process.
"This agreement didn't resolve any of the fundamental differences in the direction of spending and revenues that would address our long-term issues," said Kate Warne, the investment strategist at Edward Jones.
Rising and failing shares were roughly even on the New York Stock Exchange. Volume was higher than average at 4.4 billion shares.
2) Manufacturing growth hits lowest level in 2 years-From the AP
A private trade group says manufacturing activity barely grew in July, falling to the weakest level since just after the recession ended.
The Institute for Supply Management, a trade group of purchasing executives, says its index of manufacturing activity fell to 50.9 percent in July from 55.3 percent in June. That's the lowest reading since July 2009, one month after the recession officially ended. Any level above 50 indicates growth.
Stocks fell after the report was released. They had been trading higher ahead of the report, based on expectations that Congress will approve a deal Monday to raise the nation's borrowing limit.
The index topped 60 for four straight months earlier this year. But manufacturing has stumbled in recent months.
3) Why Canada Is Beating America-From the Wall Street Journal
While the U.S. remains mired in debt and slogs through a subpar economic recovery, Canada is moving ahead steadily. Its unemployment rate peaked at a little over 8.5% and is now 7.4%, and there were no bank bailouts. Real GDP growth is expected to be roughly 3% this year.
Now with the first majority government since 2004, and the first Conservative majority since 1993, the country has an opportunity to vault forward. The Conservatives led by Prime Minister Stephen Harper have a chance to build on the reforms begun under previous Liberal governments that Americans can only look at with envy.
Canada's government, for example, has grown smaller over the last 15 years. Total government spending as a share of the economy peaked at a little over 53% in 1993. Through a combination of spending cuts in the 1990s and spending restraint during the 2000s, it declined to a little under 40% of GDP by 2008. (It's currently about 44% due to the recession.)
Reductions in government spending allowed for balanced budgets and the retiring of debt. Federal debt as a share of the Canadian economy was almost halved from nearly 80% to a little over 40% over the same period.
On the federal level, capital gains taxes in Canada were reduced twice and currently stand at 14.5%. A series of cuts to the corporate income tax beginning in 2001 have seen the rate slashed to 15% from 28%.
Many provinces followed suit by reducing both corporate and personal income tax rates.
But the Conservative government faces two challenges: health reform and taxes.
The unavoidable challenge is the country's health-care system. Negotiations to renew federal transfers to the provinces in support of health care begin later this fall.
Canada devotes a relatively high share of its economy to health care without enjoying commensurate outcomes. Of the 28 countries in the Organization for Economic Cooperation and Development (OECD) that have universal access, Canada has the sixth-highest rate of health spending as a share of its economy.
Canadian health care is unique among the OECD countries with universal access in that Canadians alone depend almost exclusively on government for medically-necessary health care. Simply put, health care is dominated by the government in one form or another. Canada prohibits both copayments and private funding for publicly-insured services. Hospitals are for practical purposes owned and operated by government, and over 98% of physician income is from government.
But Canadians' access to care is poor, despite high spending. The country ranks 20th of 22 OECD countries for access to physicians. Canada's national statistical agency recently reported that 6.6% of Canadians (aged 12 or older) indicated being without a doctor and unable to find one. Canada also ranks poorly on access to technology: 17th for CT scanners and MRIs.
Waiting times for treatment continue to worsen. A longstanding survey by the free-market Fraser Institute recently found that the median wait time between general practitioner and treatment had increased to 18.2 weeks (2010) from 9.3 weeks in 1993 when the survey started.
While the United States moves towards greater centralization of health-care regulation, Canada's Conservatives have an opportunity to give the provincial governments more leeway in delivering and financing health care. Allowing the provinces to become laboratories for different methods of health-care delivery and financing while protecting universal access holds the greatest chance for improving health care and controlling costs.
Uncompetitive tax rates, particularly compared to the U.S., are the country's other major challenge.
Canada's Conservative Finance Minister Jim Flaherty has consistently indicated that lowering personal taxes is a priority. In a recent interview he stated that Canada "should be moving toward a flatter personal income tax system."
Canada's personal income tax rates are relatively high and kick in at comparatively low levels of income. For example, Canada's top federal marginal personal income tax rate (29%) applies to income over $128,800 (in Canadian dollars, or U.S. $135,038 as of July 29). Provincial taxes, which are generally higher than in U.S. states, are added on top of the federal rates. The top federal tax rate in the U.S. is 35%—but it applies to income over U.S. $379,150.
The Conservatives have committed to tax relief once the budget is balanced, which is expected toward the end of their current term. To implement meaningful income tax cuts, the Conservative government will also need to be more proactive with spending reductions. As demonstrated in the 1990s by their Liberal Party predecessors, spending reductions now will result in a balanced budget sooner and an opportunity for large-scale tax relief.
Winning a Conservative majority in Canada was no small feat. The question remains what the Conservatives will do with that majority.
Quote of the Day from Dave Ramsey.com:
A successful man is one who can lay a firm foundation with the bricks others have thrown at him. — David Brinkley
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