Quiet Day... Or Was It?
On the surface the S&P 500 and Dow were around breakeven on Monday. Looking below the surface we see, once again, that large caps are getting all the love. So when we drill down to the small caps of the Russell 2000 we see a heftier -0.45% decline. Plus the already historically low US Treasury rates went down once again in a Flight to Safety move.
Deteriorating fundamentals are the catalyst behind these moves. Starting in Europe we see more signs of slowing economies. Not just Greece or Spain... but the slowdown is taking root in the more stable countries of the region.
S&P now projects a -0.6% contraction for the Eurozone this year (down from their previous 0% growth projection). My guess is that we have not seen the last of these negative revisions. As the European recession picks up steam it most certainly will take some wind out of already flagging US sails.
Some of these problems are already appearing in US economic data. Monday it popped up in a surprisingly weak -13.2 reading for the Dallas Fed Mfg survey. Add that to very poor recent showings for ISM Mfg, Philly Fed and Richmond Fed and you begin to understand my concerns.
This week is jam packed with important US economic data. If these negative trends continue, then the only logical response is for stocks to head lower. If the data perks up, and prove that this was only a soft patch, then I'd be happy to change my tune.
I sure would like that... but not currently betting on it being the case.
• Roundtable Top Picks for the Week of July 30th
• 5 Charts Bears Need to Chew On
Steve Reitmeister (aka Reity... pronounced "Righty")
Executive VP, Zacks Investment Research
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Today's Top Stories: Tuesday- July 31, 2012
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