Next week the equity market faces a number of important economic indicators. Pending home sales, ISM data, employment numbers, and auto sales are set for release. Additionally, the Fed meets July 30 and 31. However, the market saw a number of macro developments this week which could influence pricing on a medium term basis. Let me know which event you think could bubble up to impact the stock market in the coming weeks. Here are your choices:
1) Two key market sectors, transportation and semiconductor, failed to hold gains over the May/June highs. The Market Vectors Semiconductor ETF (SMH - ETF report) and iShares Transportation Sector ETF (IYT - ETF report) could not sustained strength.
2) People’s Bank of China Governor Zhou Xiaochuan said the Chinese economy was under large downward pressure due to external and internal forces. He indicated that the PBOC would strengthen macro credit policy guidance and encourage lending to small businesses.
3) The Detroit Bankruptcy. The recent direction of the bankruptcy case has generated uncertainty over the credit worthiness and safety of General Obligation municipal bonds. There is a chance that municipal credit is dramatically re-priced as the trade rethinks ratings. Additionally, reforms may be around the corner for state pensions with implications for the wealth and the spending habits of government workers and private sector tax payers.
4) SAC Capital was indicted. Will there be a short term impact on prices due to the potential impact on liquidity and repositioning of portfolio holdings?
5) Japan’s June core CPI rose 0.4% y/y posting its fastest gain in about 5 years. Deflation looks to be ending in Japan. Will the gain shake global bond markets and U.S. stock market pricing?
Markets are supposed to be forward looking, but sometimes seemingly stale events show up to surprise investors. Where do you stand?