Mixed Economic Data

The stock market recovered from Wednesday’s sharp drop. The major indices traded higher for most of the day, before a late sell-off drove them in onto the red. The S&P 500 closed less than a half-point form support at 1,301.

But while investors seem to be feeling at least slightly better about a budget deal getting done before Tuesday, another negative catalyst has reared its head — weak economic data.

Not only did the durable goods number come in weak, but the Fed’s Beige Book of regional economic activity also showed weakness. Fortunately, new unemployment claims dropped below the 400,000 level for the first time in about 4 months, and earnings continue to come in solid for the most part.


Today, we got the first read on 2Q GDP growth — 1.3%. That’s better than the second quarter’s 0.4%, but it’s still not very good at this stage of the recovery. Estimates averaged 1.8% growth.

Household purchases were up 0.1% in the quarter. As much as economists like to say things like the "consumer is cautious", this number also says the "consumer is unemployed."

Add recent economic data to the impasse in Congress, and it’s looking like a couple pretty ugly days to end the week here.

The S&P 500 is poised to move below 1,301 and challenge the next support point at 1,280. It would be good if the S&P 500 stayed above that level.


As a perfect reflection of the stagnant economy, Congress has also gone stagnant on the budget deal. A vote on Speaker Boehner’s latest bill that was due to take place last night was cancelled.

The U.S. is now one day closer to the August 2 deadline. I still believe a deal will be done. But will we see a relief rally? The chances are good, but it would be nice if could get some economic data to help out…


Last week, I got same flack from Daily Profit readers after I wrote that China should mind its own business, instead of criticizing the American political process and questioning our credibility. I’m not going to reprint the letters — you know who you are. But after I’ve done a fair amount of complaining of my own, I suppose I should lighten up on China a little.

Of course, I can only imagine how our political process looks to the Chinese, or Europeans for that matter. And comments from my favorite economist, Stephen Roach, in yesterday’s Bloomberg, made me think that, as the biggest Treasury bond holder who would suffer most of America did indeed default, it’s probably OK to speak up.

Still, this is American democracy at work.

One Roach’s former Morgan Stanley colleagues, Andy Xie, a really good economist as well, suggested that China might want to buy more U.S. stocks instead of Treasury bonds. Sounds like a decent idea to me, though the U.S. stock market is much smaller than the bond market…


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