Cooper Financial Services

Market Recap — week ended July 15, 2011

Despite the wrangling over the deficit and its connection to the debt ceiling, Treasury securities held up well; prices even rose slightly as investors sought refuge from anxieties over Europe's financing problems, particularly Italy's. However, domestic equities gave up some of the previous two weeks' gains as uncertainty led some investors to book profits.

Last Week's Headlines

• With roughly two weeks left until August 2 and Congress still unable to agree on a path to raising the debt ceiling, both Moody's and Standard & Poor's placed the United States on review for a possible downgrade of its credit rating. Both cited the risk of at least a short-lived default, as did a Chinese rating agency. Meanwhile, Senate Minority Leader Mitch McConnell proposed fail-safe legislation that would permit President Obama to raise the debt ceiling by up to $2.4 trillion in three stages.
• Concerns over the financing needs of the European Union's third largest economy sent yields on Italy's sovereign bonds soaring, increasing the cost of borrowing when the country already faces a budget deficit. Meanwhile, Moody's downgraded Ireland's debt to junk status. Finally, eight European banks failed the stress tests designed to show whether they have enough capital to withstand financial shocks.
• Hurt by high oil prices in June, the U.S. trade deficit rose to its highest level since October 2008. According to the Bureau of Economic Analysis, the gap between imports and exports hit $50.2 billion, an increase of more than 15% from April. Declines in exports of consumer goods and industrial materials were responsible for the gap, along with more imports of industrial materials and capital goods.
• Prices at the consumer level fell in June for the first time in a year, though a decline in gas prices was chiefly responsible. The Bureau of Labor Statistics said prices other than food and energy rose 0.3%, putting the inflation rate over the past 12 months at 3.6%. Meanwhile, wholesale inflation also fell 0.4% in June for a 12-month inflation rate of 7.0%.
• Helped by worries about European debt and U.S. political wrangling over the debt ceiling, gold bounced back from its $50-an-ounce slump of late June to hit a new record every day last week, ending at roughly $1,590.
• Federal Reserve Chairman Ben Bernanke seemed to leave the door open to the possibility of further quantitative easing. However, he also said that the Fed is expecting the economic recovery to pick up and that QE3 is only one of several options for easing financial conditions if necessary.

Eye on the Week Ahead

Absent something unexpected, debt questions here and abroad will likely trump most other issues as earnings season continues.

Key dates and data releases: housing starts (7/19); home resales (7/20).

Data source: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. Equities data reflect price change, not total return.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.