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Deal or no deal?

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by Peter Switzer

It’s been a wild ride on Wall Street as the debt deal question marks ran up against more concerns over the strength of the US economy. Could the silly antics of the American politicians actually push a weakening US into a potential brush with another recession?

Remember this comes as the US tries to cope off the life support of the monetary stimulation, which was QE2, and it tells Congress that it might have added the kind of uncertainty that this fragile economy just did not need.

All of this uncertainty has to be a warning to our Reserve Bank that it is not time to experiment with further interest rate rises!

In case you missed it, the Dow was down 11 points to 12,132.5 while the S&P 500 was off five points to 1286.9.

So was there a debt ceiling deal effect or no deal effect? The answer is yes and no.

Let’s look at a blow-by-blow account of what happened on the New York Stock Exchange in light of the deal news that drove our market up more than 1.5 per cent yesterday.

So the Dow opened up 140 points, which made sense, but after an hour-and-a-half it slumped to negative 140 points or so and therefore it nearly gave up around 300 points! That’s volatility with a capital V.

So they bought on the deal news but sold off on a disappointing ISM manufacturing report and it went down further on negative market results out of Europe. Then Republican House Speaker John Boehner said a few things to bring back buyers and so the small fall on the Dow wasn’t too bad.

Clearly, the market does not like the ‘deal or no deal’ situation the Yanks are in but some time today the deal will go for a final vote and so tomorrow should be a big day for Wall Street.

Here are some of the big news and revelations overnight:

The S&P traded below its 200-day moving average of 1284.34 for most of the session, but finished above it, which is a good sign.
The Dow has been down seven sessions in a row.
US manufacturing slowed more-than-expected in July, with the ISM reading coming in at 50.9 as compared to 55.3 in June. This is the weakest result in two years exactly.
Economists now have second half growth at two to 2.5 per cent, down from more than three per cent.
Markets are worried that concern that Standard and Poor's could cut the USA’s triple-A rating to a double-A.

As you can see, the US economy did not need this debt drama and the only positive coming out of today’s news that I value is that economists still think the American economy can grow at two to 2.5 per cent, which means they don’t believe the double dippers.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Tuesday, August 02, 2011

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