The debt ceiling has been raised and conventional wisdom had it that we'd rally. That notion was blown apart Monday and Tuesday especially. Americans are facing an uncertain future with debts and ways to pay for them. The debt ceiling will create yet another commission to come up with solutions. This is pretty dumb since we already had a presidential commission with a recent report that no one wanted to deal with, especially the president.
The focus has shifted from this Washington melodrama to real stuff like economic data. Today Personal Income and Spending showed the first decline in 2 years. Recent reports taken together indicate a rapidly declining economy. In fact, J.P. Morgan economists have slashed forecasts for the second half of 2011 from 2.7% GDP growth (already reduced) to below single digit. The inference is a trip back to recession.
And, noises were emanating from Europe on Tuesday that more debt troubles were about to plague Spain, Italy and even France.Even with markets being already short-term oversold, the "get me the hell out" mantra echoed through the floor of stock exchanges Tuesday. Earnings? Nobody cares right now since they're just so much "old news." Sure, with good earnings reports trailing PEs will look pretty cheap but that would mask what lies ahead. Bonds continued their crazy meteoric ascent as yields on 10-year Treasury bonds dropped to 2.62%. Even those drinking Kool Aid know basic inflation wipes out this yield. The dollar rallied overall against most currencies since with stocks in a major sell-off it was time to take profits wherever available. Further margin calls were no doubt issued and it was time for some dollar repatriation. Gold continued to rise sharply to new highs while commodity markets overall were much weaker given thoughts of weak demand. Whatever 2011 year-to-date gains existed have been wiped-out for the major equity indexes. And today was the worst loss for SPY since August 2010. This shouldn't surprise since we've repeatedly been comparing this summer with last year. Volume Tuesday was quite high once again and one would think we're getting closer to a selling wash-out. Breadth per the WSJ was highly negative but didn't quite make for a 10/90 day. And ETF Digest subscriber David Hurwitz gives us his view of breadth: You can follow our pithy comments on twitter and join the conversation with me on facebook. Continue to U.S. Sector, Stocks & Bond ETFs