Weekly Update – July 6, 2012

Markets slumped Friday as a disappointing new jobs number dimmed hopes that a sustainable economic recovery was under way.  As a result, the Dow fell .96% while the S&P 500 fell .94%, erasing much of the gains made earlier in the week.

The good news of smaller than expected initial jobless (unemployment) claims was not able to offset the poorer than expected Institute for Supply Management Manufacturing Index and Institute for Supply Management Service figures this week.  Only 80,000 jobs were added in the month of June, leaving unemployment at 8.2% and people worried that Europe will drag the United States into another recession.  However, the Fed may enact another round of stimulus, which would likely provide a short term rally.

Europe did not fare any better than the U.S. markets on Friday as the German DAX index fell 1.93%, while the French CAC 40 fell 1.88%.  The progress that was made at last week’s EU Summit, which pushed down the Spanish 10-year bond yields from 7.11% to 6.29%, has largely been erased as the Spanish 10-year yield has shot back up to 6.91% on Friday.  Attention reverts to Mario Draghi, the President of the ECB, who will give a speech on the current state of the EU economy on Monday.  Analysts are hopeful that lasting progress can be made to avert a further slow done in Europe.

The dust is beginning to settle on the historic Supreme Court Health-Care ruling that was announced last week.   The healthcare bill will be partially financed by a 3.8% surtax on investment income from dividends, capital gains, rents, royalties, interest, and certain annuity income by single filers and joint filers whose adjusted gross income is over $200,000 and $25,0,000, respectively. The tax doesn’t cover payouts from either regular or Roth IRA’s, 401K accounts, pensions, social security, and veteran’s benefits.  This tax is not set to go into effect until 2013.  It is viewed as a drag on economic growth.

Important economic indicators due out next week include the consumer sentiment index and the U.S.’s trade balance for the month of May as well as initial and continuing jobless claims and the crude inventory report.  The Federal Open Market Committee will also convene on Wednesday to provide an in-depth overview on the current state of the economy and to discuss any monetary policy action that may be undertaken to improve growth prospects of the U.S. economy.  Corporate earnings announcements for the second quarter start Monday.

Have a good weekend,

Fred Semmer