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 Last week was incredibly busy for economic events, and it ended with a disappointing jobs report and the stock market closing at an all-time high. This week will be far less busy. Perhaps this is a good time for investors to look over the economic data and consider the positioning of their portfolios. One thing's for sure: it has been paying off to be a long-term bull. On Friday, we learned that Berkshire Hathaway's Q2 financial results were better-than-expected. The results included $390 million in unrealized gains on Warren Buffett's massive long-term derivative bet on the global stock markets.
Top Stories - The Rise of The West: Amid last week's wave of economic data, one trend became clear: the developed markets are heating up and the emerging markets are cooling off. BI's Joe Weisenthal summed it up nicely: "There are a few things going on. For one thing, the U.S. has made extraordinary strides in deleveraging, and working off the burdens that the economy faced before, during, and in the immediate aftermath of the crisis. Here's a great series of charts demonstrating exactly that. Meanwhile, China, whose growth drives much of Asia (and commodity exporting emerging markets in general) is seen as slowing for both cyclical reasons (working off the excess capacity it built up in responding to the global slowdown) and structural reasons (the great demographic dividend seems to be coming to an end)."
- What Does All of This Mean For Monetary Policy? : Nonfarm payroll creation was weaker than expected, but the unemployment rate came down. This complicates the calculus the Fed considers when it thinks about altering the direction of monetary policy. Perhaps this weeks Fed speakers will offer some color. From Deutsche Bank's Joe LaVorgna: "Dallas Fed President Fisher (non-voter) speaks on the economy on Monday, and given his hawkishness, it is doubtful he shares Bullard’s sentiment. In contrast, Chicago Fed President Evans (voter) is scheduled to give a press interview on Tuesday and given his dovishness, it is likely he too will want to see further confirmation that the labor market is on a sustainable path to recovery. On Wednesday, Cleveland Fed president Pianalto (non-voter) will be speaking on the economy, and as one of the more moderate Fed participants, she has indicated in previous speeches that she would rather see asset purchases begin to slow sooner rather than later. It will be interesting to see if her view has changed at all in light of the recent data."
Economic Calendar - ISM Non-Manufacturing Index (Monday): Economists estimate that the ISM services index climbed to 53.0 in July from 52.2 a month ago. "With 14 of 16 industries reporting growth in June, we continue to look for expansion in the service sector. One point of concern is the forward-looking new orders component, which dropped from 56 in May to 50.8 in June," said Wells Fargo's John Silvia. "With this component barely in expansion territory, we suspect the headline could show weakness in the coming months."
- Job Openings And Labor Turnover Survey (Tuesday): Economists estimate that job openings in June climbed from the May level of 3.82 million. "Consistent with a reported rebound in online help-wanted advertisements during the reference period, the Bureau of Labor Statistics’ count of available positions probably climbed by 80,000 to 3.91 million in June – the highest tally since May 2008," said Societe Generale's Brian Jones.
- Consumer Credit (Wednesday): Economists estimate that consumer credit balances increased by $15.0 billion in June. "We expect revolving credit balances (mainly credit card activity) to show a $0.5bn decline for June, after rising by an unusually robust $6.6bn in May and by $0.8bn in April," said Credit Suisse's Neal Soss. "We put the change in the volatile nonrevolving credit component (mainly auto and education loans) at $14.0bn for June, more than May’s $13.0bn gain. The driving force behind consumer credit growth has been increasing student loans, although the May report indicated auto loans contributed sizably to that month’s gain. We expect to see further gains in this sector as annualized vehicle sales rose to a multi-year high in June (16.0mn)."
- Jobless Claims (Thursday): Economists estimate that claims will jump to 336,000 from 326,000 last week. "Jobless claims will be one of the most important indicators to track between now and the next employment report in September," said Deutsche Bank's Joe LaVorgna. "If the recent drop in claims is sustained, it would be highly unusual if payrolls did not improve."
Market Commentary Citi's Tobias Levkovich is concerned about a worrisome trend developing in the stock market: "Intra-stock correlation of the top 50 market cap names has plunged in the past month. Investors look to be at risk given the collapse of intra-stock correlation from 66% at the end of June to just 18% at the month's end in July which suggests that investors might be overly focused on stock picking and have begun to ignore broader influences such as Fed policy, market valuation, European growth trends, economic surprise indices and the like. Very high readings on intra-stock correlation tend to generate an intriguing buy signal as seen in September 2011, while low levels suggest a degree of complacency that puts fund managers at risk for a correction." SEE ALSO: 15 Cities Where House Flippers Are Making Tons Of Money |
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