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July Could Be a Pivotal Month

Without a breakthrough in Congress on the debt ceiling or the economy, I expect a drop to DJIA 12,450 followed by a brief technical rally, followed by a drop to the 12,275 area. For the S&P

Without a breakthrough in Congress on the debt ceiling or the economy, I expect a drop to DJIA 12,450 followed by a brief technical rally, followed by a drop to the 12,275 area. For the S&P 500 this works out to a drop to 1327 – a brief rally, then a drop to 1307.

A drop of more than 120 Dow points is likely today at the open.

President Obama will hold a news conference at 11 a.m. today to address progress, or lack of progress, on the deficit reduction and raising the debt ceiling. At a meeting Sunday, he said a decision on the latter must be made within 10 days.

I expect a very terse, hard-hitting statement by the President, expressing confidence that Congress will agree to a debt ceiling increase, but highlighting the dire consequences here and abroad if it doesn’t.

Let’s not become intimidated by the flurry of negative news in recent weeks and concerns (justified) about the debt ceiling. I sense opportunity, in the form of a selling climax in the near future. The impact of Q2 earnings reports is as of now anyone’s guess.

Brooksie’s Daily Stock Market blog: Aan edge before the open.

Monday, July 11, 2011 9:23 am EDT

DJIA: 12,657.20
S&P 500: 1343.80
Nasdaq Comp.: 2859.81
Russell 2000: 858.57

The sovereign debt issue is still adversely impacting global financial markets, this time it’s Italy.

We still have the issue of raising the debt ceiling, which has been done without brinkmanship 75 times since 1962. As we see before our eyes, the economy changes more directions in a two week span than a punt returner in six seconds, so we will have to wait for more info.

This is a big week for economic news with: Tues: International Trade, FOMA Report (day early); Wed.:Treasury Budget; Thurs.: producer Price Index, Jobless Claims, Business Inventories, and Fri.:Consumer Price Index, Empire StateManufacturing Survey, Industrial Production, Consumer Sentiment.

Common sense says Congress will find some way to raise the debt ceiling in time to meet the deadline of August 2, but more realistically by mid-July to allow the necessary procedures pursuant to an approval to take their course. Anyone who claims default is a non-event is just poorly informed.

New hires cloud the economic picture, but that is a product of the severity of the 2007-2009 recession. Job recovery is actually a tiny bit ahead of past recoveries, according to University of Michigan’s professor of economics, Mark J. Perry.

This leaves Q2 earnings reports.

Based on a Bloomberg study of earnings estimates, Q2 earnings for the S&P 500 will increase 13% vs a gain of 18% in Q1 and 19% for 2011, as a whole compared with post-recession gain of 37% in 2010. Presently, estimates for 2012 are for growth in the neighborhood of 14%, Bloomberg notes.

Just how much the Street has factored in this slippage for Q2 has a lot to do with whether the June lows will hold. Odds favor that these lows will hold IF a second half rebound is in the cards.

Q1 corporate earnings reports in April/May sparked a big rally, which I believe the BIG money used to unload stocks prior to an 8% plunge in the stock market.

This time around, the sellers could be institutional investors and the public, if reports disappoint.

Recent Headlines :
“Is the Fix In” ? (June 16 – DJIA: 11,897)
“Quadruple Witching Friday –Buying Open Risky” (June 17 DJIA 11,961)
“Ugly ! Nevertheless, the Outlook Can Change Quickly” (June 20 – DJIA 12,004)
“No Time For Napping” – (June 21 DJIA: 12,080)
“No Hope in Sight ? Don’t Bet on IT ! Prepare for Opportunity” – (June 22, DJIA: 12,190)
“Countdown to Opportunity – Start Preparing !” – (June 23 DJIA 12,109)
“ BIG Money Nibbling – Stocks Beginning to Look Attractive – Negatives can Vanish” (June 24 DJIA:
“Institutions Showing Interest – Not Reaching Yet” (June 27 DJIA: 11,934)
“Will Q2 Earnings Reports and Congressional Action on Debt Ceiling” (June 28 DJIA 12,043)
“ Don’t Buy News on Greek Vote – Spike to Be Short-Lived” (June 29 DJIA: 12,188)
“Again: Debt Ceiling Approval and Q2 Earnings Catalysts” (June 30 DJIA: 12,261)
“Enjoy the Fourth ! Prepare for Fireworks in Weeks Following” (July 1 DJIA: 12,414)
“Did Someone Blink ?” (July 5 DJIA 12,582)
“A Pause is Needed Here to Digest Recent Gains, Q2 Earnings Ready to Take Center Stage” (July 6
DJIA 12,569
“Whoa !” (July 8, DJIA: 12,719.49)

George Brooks
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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