Wednesday, June 15, 2011 9:23 am EDT
S&P 500: 1287.87
Nasdaq Comp.: 2678.72
Russell 2000: 793.99
Two issues are overhanging the stock market – a slowdown in the economy and raising the nation’s debt limit, pursuant to solutions to the rising national debt.
Disappointing economic reports for consumer confidence, employment, production and home sales earlier this month jolted the stock market, prompting many investors to sell, others to defer new buying.
Raising the debt ceiling, a process resorted to 74 times in the last 50 years, is being held hostage to acceptable spending cuts in the nation’s budget. While some U.S. Senators don’t think default on certain U.S. obligations, as a result of not raising the debt ceiling would affect financial markets, others disagree.
Fed Chair Ben Bernanke is one of them, stating yesterday, “We should avoid unnecessary actions or threats that risk shaking the confidence of investors in the ability and willingness of the U.S. government to pay bills.”
Two things are common to both these worries ?
For one, they deserve concern. Stock prices have not yet discounted a serious economic slump, and failure to raise the debt limit would risk serious disruption in the financial markets here and abroad.
For another, both negatives can VANISH quickly.
All it would take is for the economy to resume its pained recovery, reinforcing the belief of a number of economists that the current slump is temporary and a result of a surge in commodity prices, weather and flooding here, and Japan’s problems.
Add to that, enough progress in Congress on future deficit reduction to allow a timely raise in the debt ceiling and poof, two formidable negatives disappear.
Today: Yesterday’s upside limits of DJIA 12,090 and S&P 500 1286 stifled the market’s rally, as feared here, resulting in a crunch today. The U.S. stock-index futures indicate yesterday’s gains will be wiped out at the open.
This is an all too familiar “daily” trading pattern – up in early trading followed by a slightly rising trend throughout the day, then down at the close, to be followed by a plunge the following day. Check Big Charts.com 10 day trading.
This is a big week for economic reports – CPI, New York and Philly area business activity reports, industrial production, consumer sentiment and the leading U.S. economic indicators.
Don’t get too discouraged – the market will find a comfort level. Good news could reverse this carnage, it is the last thing that most investors expect.
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.