Investors Worry Over a Slowing Economy and Depressed Sentiment

Markets:

For the week of August 1, 2011 through Thursday, August 4, 2011

• Standard & Poor’s 500 Index: -7.14%
• Dow Jones Industrial Average: -6.26%
• NASDAQ Composite: -7.26%

The market was down for the week, taking a beating on Thursday as a massive sell-off took place. Congress and the President reached an agreement on the United States debt ceiling. However, new data on the growth of the economy was released last Friday that was weighing heavily on the market. GDP for the first quarter was revised down to 0.4% from 1.8%.

United States Debt Ceiling

• A deal was reached by legislators to raise the U.S. debt ceiling in two steps in exchange for $917 billion in spending cuts over 10 years.
  • The deal immediately raises the debt ceiling and creates a committee to find an additional $1.5 trillion in cuts before the debt limit can be raised again.
  • If the committee cannot reach an agreement on deficit reduction savings, automatic cuts will take place from the military budget and from Medicare.
• The good news was that there were no tax increases.

Economic Data

• Jobless Claims
  • Initial jobless claims fell 1,000 to 400,000 for the week ending July 30.
  • However, numbers for the week of July 18th were revised up to 401,000 from 398,000.
• ISM Services Index
  • The ISM nonmanufacturing index fell to 52.7 for the month of July from 53.3.
  • New orders were also down to 51.7 from 53.6, but still above the growth threshold of 50.
• ISM Manufacturing Index
  • Barely maintaining growth, the ISM manufacturing index for July fell to 50.9 from 55.3.
  • The sub index for new orders fell below the 50 level that defines growth or contraction.
    • The last time it was below 50 was during the middle of 2009.
• United States Gross Domestic Product (GDP) Revisions
  • GDP for the first quarter was revised down to 0.4% from 1.8%.
  • Second quarter growth fell short of expectations of 1.9% at 1.3%
  • The third quarter is off to a slow start.
• Employment Reports
  • The Bureau of Labor Statistics report on Friday showed non-farm payrolls increased by 117,000, beating the estimate of 85,000.
  • The unemployment rate dropped slightly to 9.1%.
  • The ADP Jobs Report numbers are positive for July with a 114,000 increase in payrolls, mostly in the services sector, which is 9,000 more than expected.
    • However, for the past couple of months, ADP has not been very accurate, overstating employment gains.
  • Recently, a few companies have announced layoffs in the thousands which will not help the employment situation in the United States.

Company News

• Bank of New York Mellon Corp. (NYSE: BK)
  • Announced that it will begin charging customers 13 basis points, or 0.13%, for deposits in excess of $50 million.
  • This is a first for a bank in the United States.
• Emerson Electric Co. (NYSE: EMR)
  • Profit was up 17%; however, shares were down as a result of the company missing earnings per share by one cent and sales numbers.
  • Sales fell short of the expected $6.34 billion, coming in at $6.29 billion.
• MasterCard Inc. (NYSE: MA)
  • Shares gained 13.4% after MasterCard reported the company increased profit by 33%.
    • Earnings were reported at $4.76 per share, beating expectations of $4.22.
  • The company benefited by adding new banks to its list of issuers and from consumers using their cards more.
• InterContinentalExchange, Inc. (NYSE: ICE)
  • Profit rose 19% for ICE mostly because of a growth in trading on energy futures.
  • ICE will benefit in the future from increased regulation that forces trades through exchanges.
  • Average daily trading volume increased 5% for the quarter.
• Monthly Retail Sales Rose for July with the following retailers reporting same-store-sales increases:
  • Target Corp. (NYSE: TGT) up 4.1%;
  • Macy’s (NYSE: M)  up 5%;
  • JC Penney Company Inc. (NYSE: JCP)  up 3.3%;
  • Kohl’s  Corp. (NYSE: KSS) up 4.6%;
  • Limited Brands, Inc. (NYSE: LTD) up 6%;
  • Hot Topic, Inc. (NASDAQ: HOTT) up 7.3%, and
  • Costco Wholesale Corp. (NASDAQ: COST) up 10%.

Interest Rates

• The two-year Treasury fell to 0.29%, an all-time low for the two-year yield.
• The five-year Treasury rate dropped to 1.21%, a 15 basis point decline and more than 1% lower in the last few months.
• The 10-year Treasury rate dove to 2.53%, also down 1% since April.
• The 30-year Treasury slipped 0.29%, falling below 4% to 3.83%.

Disclosures

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