Despite the arm-wrestling both here and abroad over deficits and debt, investors clearly had no problems with risk aversion last week. The Dow saw its best day of the year on Tuesday, gaining more than 200 points, and followed it up on Thursday with a 152-point gain. With investors apparently willing to assume that U.S. lawmakers will reach an agreement on the debt ceiling by the August 2 deadline, the small-cap Russell 2000 and the NASDAQ bested their large-cap brethren. Relief over an agreement on Greek assistance helped the Global Dow recoup the previous week's losses.
- Heated debate: Despite reassurances all around that lawmakers would not allow the United States to default, the path to raising the U.S. debt limit continued to be elusive. The primary points of contention continued to be how long any increase should be designed to last, and the proportion of spending cuts versus revenue increases. Talks between the White House and House Majority Leader John Boehner over a package that would cut $3 trillion to $4 trillion from the deficit over 10 years broke down Friday. However, congressional leaders continued to explore various stopgap plans that would allow the August 2 deadline to be met.
- Meanwhile, anxieties about sovereign debt overseas eased a bit after European leaders agreed to a second bailout for Greece that they hope will keep the contagion from spreading. According to the agreement, bondholders will exchange their Greek bonds for ones with later maturity dates and possibly lower interest rates--a move that credit agencies have suggested in the past might be considered a "selective default." The European Union's bailout fund and the International Monetary Fund (IMF) will lend an additional €109 billion. The ability of the bailout fund to buy sovereign debt also will be expanded, and guarantees of backing for the bonds would enable the European Central Bank to accept troubled bonds as collateral.
- Housing starts were up 14.6% in June, according to the Department of Commerce. That's almost 17% higher than last June's number. Multifamily buildings showed the most improvement.
- Sales of existing homes fell 0.8% in June. According to the National Association of Realtors®, it was the third straight monthly decline.
- The global uncertainty helped the price of gold briefly top $1,600 for the first time. Oil prices turned back toward $100 a barrel, but the International Energy Agency did not release additional emergency stockpiles.
With the European debt crisis back on simmer, investor sentiment may reflect the week's stream of headlines. Progress or lack thereof on resolution of the U.S. debt ceiling dilemma is likely to eclipse earnings reports and the first look at second-quarter economic growth.
Key dates and data releases: new home sales (7/26); durable goods orders (7/27); pending home sales (7/28); labor costs, initial estimate of gross domestic product (GDP) for Q2 (7/29).
Data source: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. Equities data reflect price change, not total return.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.
