Thursday, October 27, 2011 9:14 am EDT
DJIA: 11,869.04 S&P 500: 1242.00
Is this a screaming “BUY” signal? Not at the open. Bear in mind the S&P 500 was up 16% prior to the announcement of a deal, and a lot of that move was in anticipation of a deal. There will be sellers at the open, but not enough to prevent a BIG jump. This is the beginning of a new trading range possibly DJIA 12, 550 – 11,650.
But, Europe’s agreement averts a huge sell off that would have resulted from a failure to reach an accord, and it sets to one side an oppressive negative that had stock prices locked in a trading range between May and October.
It’s a good start !
Does this solve all Europe’s problems ?
No, but it heads off the beginning of a “no confidence” tailspin in global securities that in my opinion was going to happen if European leaders failed to strike a meaningful accord.
With the agreements that rose from the 14th crisis summit in 21 months, Europe has a foundation, which deals with Greek debt, bank recapitalization, a bigger role by the International Monetary Fund, fortification of its “rescue” fund, and assurance from Italy that it will put its financial house in order.
Will austerity measures that accompany efforts to emerge from its financial turmoil push Europe into a recession from its fragile economic recovery ? It’s possible, but it beats a meltdown.
The other road block to a revival of the bull market that started in March 2009, but encountered a major setback last May, is the U.S. economy and is it headed into recession.
So far economic indicators that signal a nosedive haven’t done so. Softness – Yes, recession – No.
Q3 earnings reports are generally good. It appears that earnings for the S&P 500 will advance 16% for the quarter leading to an overall gain of 18% for 2011.
Q3 GDP posted a surprise gain, rising 2.5% at an annual rate. Obviously, Q3 ended stronger than it started in light of the fact Q2’s growth rate was only 1.3%.
Consumer spending in Q3 increased at a 1.9% annual rate, up sharply from Q2’s 0.7% rate.
Economic and job recoveries take longer following a severe recession. This on is tracking the norm.
The SuperCommittee has been lost in the shuffle, upstaged by international financial worries and the state of our economy here at home. Nevertheless, it will raise its ugly head to remind us whether our government is, or is not, dysfunctional.
12-member SuperCommittee timeline:*
Oct. 1- Dec. 31: Both houses of Congress must vote on a Balanced Budget Amendment.
Oct.: 14: Deadline for House and Senate Standing Committees to submit recommendations.
Nov. 23: Deadline for both houses to vote on a plan with a 10-year deficit reduction goal of $1.5 trillion Dec. 2: Deadline for committee to submit report and legislative language to President Obama and Congress.
Dec. 23: Deadline for both houses to vote on committee bill.
Jan. 15, 2012: Date that the “trigger” leading to $1.2 trillion of future spending cuts goes into effect if
the committee’s legislation has not been enacted.
Feb. 2012: Approximate time when first $900 bn of debt ceiling runs out.
Feb./Mar.2012: Deadline for Congress to consider a resolution of disapproval for the second tranche
($1.2 – $1.5 trillion) of debt limit increase.
Fall/Winter 2012: When additional $2.1 - $2.4 trillion of borrowing authority from this law runs out.
Jan.2, 2013: OMB orders sequestrations for defense and non-defense categories of spending necessary
to meet spending cuts required by the “trigger.”
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”
The writer of Brooksie’s Daily Stock Market blog, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.
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