Can the Bulls continue their momentum after a strong July? by Ken Mahoney

Can the Bulls continue their momentum after a strong July? by Ken Mahoney

July was a good month for stocks, with the Dow gaining 7.1% and both the S&P and the Nasdaq rising 6.9% to post their biggest monthly gains since July 2009. Despite ongoing concerns about the world economy, stocks were bolstered by strong second quarter financial results. Of the roughly 300 companies in the S&P 500 that have reported so far, approximately 75% of them have published earnings that beat analysts’ estimates.

The biggest economic news last week came from GDP numbers released by the Commerce Department on Friday which indicated that gross domestic product – the value of all goods and services produced by the U.S. economy – grew at a 2.4% annual rate in the period. That figure is down from an upwardly revised 3.7% in the first quarter and 5.0% in the final quarter of 2009, indicating that the economy lost momentum in the second quarter. And while businesses increased spending on equipment and software by 22%, overall spending by consumers remained sluggish, rising just 1.6%. Why is this important to note? Because even if businesses are logging strong profits and spending money, the economy can’t grow at a healthy pace without support from the consumers who’s spending accounts for 70% of economic activity. Without a healthy upturn in jobs and consumer spending, many analysts expect the recovery to lag.

Commenting on the jobs situation, Alec Young, an equity strategist at Standard & Poor's said Friday, "Even though earnings and guidance have been better than expected, there's still skepticism in the market because jobs have been missing in action.” He then added, “The market could push higher late next week if the government's July employment report comes in better than expected on Friday.” Investors will doubtless have their eyes on this and other economic reports due in the weeks ahead as they look for signs of where the market is headed.

Key things to watch this week:

Monday – ISM Manufacturing Index, Construction Spending
Tuesday – Motor Vehicle Sales, Personal Income and Outlays, Factory Orders
Wednesday – ISM Non-Manufacturing Index
Thursday – Jobless Claims
Friday – Employment Situation, Consumer Credit


HEADLINES:
Congress is stepping up its scrutiny of the controversial chemical dispersants sprayed on the Gulf of Mexico oil spill to prevent crude from washing ashore and fouling beaches and marshes. Rep. Edward Markey, a Massachusetts Democrat, is demanding that federal officials provide more information about why the chemicals continued to be used almost daily in June and July, after the Environmental Protection Agency told BP PLC to slash their use because of concerns about the effect on marine life.

BlackBerry email, instant-messaging and Web-browsing services will be banned in the United Arab Emirates starting in October, regulators said, citing a dispute with the device's maker about how it handles electronic data.

China’s manufacturing grew at the slowest pace in 17 months in July as the government clamped down on property speculation and investment in energy-intensive and polluting factories.

State and federal regulators shut down five banks Friday, bringing the total number of bank failures for 2010 to 108.

Volatility in the Treasurys market has dropped back to levels reminiscent of the summer of 2007, as the recent soft economic data have lulled market participants into the view that the recovery will be muted. That in turn is cementing the expectation that the Federal Reserve will keep rates at ultralow levels well into next year. As a result, yields have drifted in a tight range. The 10-year yield, which Friday stood at 2.909%, has been trapped in a range of 2.85% to 3.15% since late June.


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Sources:
Marketwatch
The Wall Street Journal Online
Barrons
CNN Money
http://online.wsj.com/article/SB10001424052748703787904575403393553353172.html?mod=WSJ_hpp_MIDDLETopStories
http://www.bloomberg.com/news/2010-08-01/blackberry-expansion-at-risk-as-governments-tighten-curbs-on-mobile-e-mail.html
http://www.nytimes.com/2010/08/02/business/global/02iht-yuan.html?src=busln
http://online.wsj.com/article/SB10001424052748704020204575401583210049798.html?mod=WSJ_hpp_sections_markets

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