July 29, 2011: Market Update

Aug 1, 2011   //   by Marc Henn   //   Weekly Market Update  //  No Comments

The Debt Ceiling… Still Waiting

The market had a roller coaster day on Friday to finish out the week lower in the wake of concerns over the U.S. debt situation.  Overshadowed on the day somewhat were reports that the Gross Domestic Product (GDP) of the country grew at a slower than expected pace.  The annualized GDP number came in at 1.3% in the second quarter along with consumer sentiment dropping slightly to its lowest level in over two years.  There was some good news reported as well – both the July ISM New York Business Index and the Chicago PMI numbers showed economic expansion while the July Consumer Confidence level actually surprised to the upside.

With all the talk about the debt situation one could forget that we are smack dab in the middle of earnings season.  Earnings for S&P 500 companies are the highest in four years with expectations of potentially stronger growth in the second half of the year.  While this is good news, most of the growth is coming from overseas operations, which means the stronger earnings may not provide as big of a boost to the U.S. economy as some would like to see.

For the most part, industrial companies have been disappointing with their numbers primarily due to much higher input costs and cooling global demand because of the Japan tragedy.  Outside of this sector we are seeing a nice reporting season.  As a sample for this week, 3M, Occidental Petroleum, Praxair, DuPont and Starbucks all reported earnings that beat estimates.

Big oil firms are expected to report their best 2nd quarter earnings on average since 2008 as rising crude prices should provide a positive lift to earnings.  While this may be true, we also expect to see the large integrated oil firms that have spent heavily on natural gas production over the past 3 to 4 years begin to suffer somewhat as natural gas prices remain low.

In the news you may not have heard, it was reported this week that Apple is now more liquid than Uncle Sam.  Apple now has more cash on their books than the United States has spending room.  While these numbers are not directly comparable and it is unlikely that President Obama will be asking for a loan, it does give a glimpse into how powerful Apple has become.  It currently stands as the second largest company on the planet – behind only Exxon Mobil.

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