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MARKET MONTH: JULY 2011

August 2, 2011

John Jastremski Presents:

 

MARKET MONTH: JULY 2011
The MarketsDown to the wire: Uncertainty about default, debt, and political infighting affected equities markets both here and abroad. Despite a strong initial week that gave the S&P 500 its biggest percentage gain since mid-2009, all four domestic indices ended the month down. The small caps of the Russell 2000 were hit the hardest, while the Global Dow also suffered.

Global anxiety paradoxically proved to benefit long-term U.S. Treasuries, though short-term debt suffered in the month’s final week as August 2 and the potential for default loomed. The dollar resumed a decline that had been interrupted by eurozone uncertainty. The weaker greenback helped nudge oil prices up around $100 a barrel once again; it also sent gold to a string of new records, ending above $1,600 an ounce.

Market/Index 2010 Close Prior Month As of 7/29 Month Change YTD Change
DJIA 11577.51 12414.34 12143.24 -2.18% 4.89%
NASDAQ 2652.87 2773.52 2756.38 -.62% 3.90%
S&P 500 1257.64 1320.64 1292.28 -2.15% 2.75%
Russell 2000 783.65 827.43 797.03 -3.67% 1.71%
Global Dow 2087.44 2134.29 2088.82 -2.13% .07%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 3.30% 3.18% 2.82% -36 bps -48 bps

The Month in Review

  • Despite warnings that the United States’ AAA credit rating was in danger of a downgrade, Washington spent much of July in hand-to-hand combat. Debate over an increase in the debt ceiling morphed into a battle over how to begin tackling the deficit. As tax increases were taken off the table, the main issues became whether to revisit the issue in six months or try to get through all of 2012; when, where, and how deeply to cut spending; and whether to link any increase to a balanced budget amendment, the findings of a new congressional committee, or various deficit proposals. Though no legislation had been signed or even passed by both houses of Congress, leaders announced that with hours to go before month’s end, they had reached an agreement to submit to their respective members.
  • Anxieties about sovereign debt overseas eased a bit after European leaders agreed to a second bailout for Greece. The hope is that the new aid package will keep the contagion from spreading to other countries such as Portugal, Ireland, Italy, and Spain, which have suffered from soaring interest rates caused by rating downgrades. 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.”
  • U.S. economic growth during the second quarter was a scant 1.3%, according to the initial estimate from the Bureau of Economic Analysis. Even more discouraging was the downward revision to the estimate for Q1. It put the figure at 0.4%–essentially flat, and substantially lower than the earlier 1.9% figure.
  • Unemployment nudged upward slightly to 9.2%. The Bureau of Labor Statistics said private-sector industries were basically flat, while government employment continued to trend down.
  • Consumer inflation fell for the first time in a year in June, while the Bureau of Labor Statistics said wholesale inflation also was down.
  • Housing news was mixed. The National Association of Realtors® said sales of existing homes were down for the third straight month in June, and according to the Commerce Department, new home sales fell 1% during the month. However, home prices measured by the S&P/Case-Shiller index turned up as summer began and the Commerce Department said housing starts rose 14.6%.

Eye on the Month Ahead

Much will depend on what happens in the hours leading up to August 2. If default is off the table, investors will still keep an eye on bond rating agencies to see if there is any follow through on threats of a rating downgrade. Treasury auctions, especially those scheduled early in the month, will be watched for signs that cautious investors are pushing yields up and prices down. And the big question: what impact will economic uncertainty have on consumers’ willingness and ability to spend?

Key dates and data releases: manufacturing, construction spending (8/1); deadline for increase in debt ceiling, auto sales, personal income/spending (8/2); factory orders, U.S. services, Treasury auctions of 3-year, 10-year, and 30-year securities (8/3); unemployment/payrolls (8/5); labor productivity/costs, Federal Reserve Open Markets Committee announcement (8/9); international trade (8/11); retail sales, business inventories (8/12); international capital flows (8/15); housing starts, industrial production (8/16); wholesale inflation (8/17); consumer inflation, home resales (8/18); options expiration (8/19); new home sales (8/23); durable goods orders (8/24); second estimate of Q2 gross domestic product (8/26); personal income/spending, FOMC minutes (8/30).

Data source: 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 reflects price changes, 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.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

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John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

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