Monday, October 31, 2011 9:16 am EDT
DJIA: 12,231.11 S&P 500: 1285.08
We got the big news out of Europe last week, which the market greeted with yet another breakout on the upside, before pausing on Friday to catch its breath.
Since October 4, the DJIA is up 1,577 points (14.8%), and the S&P 500 up 186 points (16.9%). A good chunk of that was in anticipation of an agreement by European leaders to address their bank and sovereign debt issues. Critics, shorts, and doomsters will stop at nothing to find fault with the measures that were proposed to head off an international crisis. Some of their criticism is justified, so risks remain, What is really needed is more detail about funding the 1 trillion euro ($1.5 trillion) rescue plan, a way to guarantee bank debt and thaw funding markets, as well as assurance that Greece and Italy can successfully employ the needed austerity measures,
“The very best you can hope for is it buys you time,” explains Jonathan Loynes of London-based Capital Economics, adding, “But it won’t prevent the debt crisis overall from rambling on and indeed escalating.”*
As I noted Friday, what is important to bear in mind in coming months is the fact European leaders set aside differences in culture, economies, financial structures and “memories” to forge the beginnings of a plan to address bank illiquidity and sovereign debt issues.
On the home front:
So far U.S. economic data has portrayed a slowing economy but not one that is headed into recession. This week we will get a number of key reports, as well as the meeting of the Federal Open Market Committee [FOMC].
At 9:55 today we get the Chicago PMI report, a reflection of regional business conditions in October. Its September reading surprised on the upside.
Tuesday features the ISM Manufacturing report (10 am), a survey of 300 firms encompassing employment, production, new orders, supplier deliveries and inventories; it is expected to rise modestly. Construction Spending will also be reported. No advance info, but it has been creeping up in recent months.
Wednesday brings the ADP Employment report at 8:15, which may give us a heads up on Friday’s Employment Situation Report. Increases in employment have fallen short of the amount needed to turn the unemployment rate down, this report is not expected to be an exception. The FOMC meets at 12:30 and additional measures to stimulate the economy may be considered.
Jobless Claims will be reported at 8:30 Thursday and Factory Orders at 10 o’clock. The ISM Non-Manufacturing report comes at 10, and is expected to show a modest increase. The all important Employment Situation report hits the Street at 8:30, but is not expected to be a game changer.
The bottom line appears to suggest slowdown, but no recession.
CONCLUSION: The U.S. stock-index futures point to a lower open. While this is primarily a “technical” correction after a big run last week, the extent of the decline this week will hinge on the economic reports noted above. Not much is expected. If worse than expected, look for a drop in the DJIA to 11,750 (S&P 500: 1235). Better than expected, look for stabilization above DJIA 12,000 (S&P 500: 1260).
Recent blog headlines:
Oct. 14, DJIA: 11,478, “Europe Still the Key – Q3 Earnings Run a Close Second”
Oct. 17, DJIA: 11,644, “Snags En Route to Euro-Solution to be Expected”
Oct. 18, DJIA: 11,392, “Test of the October 4 Rally’s Strength”
Oct. 19, DJIA: 11,577, “Best Six Months Looms, But Volatility to Continue”
Oct. 20, DJIA: 11,504, “All Eyes on Euro-Summit this Weekend”
Oct. 21, DJIA 11,541, “DJIA 12,000 “IF” the Europeans Can Get It Right”
Oct. 24, DJIA 11,808, “Euro-Solution Announcement After Wednesday’s Meeting”
Oct. 25, DJIA 11,913, “Short-Term Euro-Solution Doesn’t Cut It”
Oct. 26, DJIA 11,706, “Ball’s in Europe’s Court”
Oct. 27, DJIA: 11,869, Great News – Buying at Open Risky Short-Term – Higher Trading Range
Oct. 28, DJIA 12,208, “Buyers on Dips – Euro-Deal to Hit Some Snags (Normal) – Doomsters and Shorts Out in Force”
NOTE: I will be traveling tomorrow and may not be able to post a blog
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