Stock markets around the world took a beating today as investors grew ever more pessimistic about the global economy with evidence mounting that a serious slowdown may be under way.  The S&P/TSX composite index plunged 435.89 points or 3.40% to 12,380.13, its biggest 1-day decline since late June 2009.

Just a couple of weeks ago, investors were concerned the U.S. economy had hit a soft patch. Since then a slew of economic data have raised worries it will slip back into recession. Manufacturing, consumer spending and hiring by private companies are below levels that are consistent with a healthy economy not to mention the worries surrounding the sovereign debt issues.

Investors will be looking towards economic data released Friday for more perspective on the direction of the U.S. economy.  Expectations are modest for tomorrow’s U.S. non-farm payrolls report for July, with economists expecting 75,000 jobs created.  Canadian jobless figures for July will also be released on Friday and economists expect about 20,000 jobs were created.

Stock buying sentiment has also been hard hit recently by concerns that Italy or Spain may need financial help from the European Union.

Markets also fell because of the weeks of bitter political fighting that preceded an agreement by American policy makers to raise the U.S. debt limit and avoid a default. One market strategist said both the Main Street and Wall Street are suffering from crisis fatigue after 2 weeks of Washington putting everybody over the edge before reaching a deal to hike the federal debt limit.

The “risk off trade” has resulted in large investors moving so much money into cash accounts at Bank of New York that today the bank said it would begin charging some clients a 0.13% fee to hold their cash.

The change in investor sentiment has taken a substantial toll on the Canadian stock market in short order.  The index has been down 6 of the last 8 days, taking the Canadian market down more than 8.00% from the start of the year and more than 12.00% since the stock market high of 2011.

Energy stocks were a big loser on demand concerns, dropping well below US$90 a barrel to US$86.63 a barrel, the lowest close since mid-February.

The Bank of Japan’s move to control the rise of the yen by selling the currency and buying the greenback. Japanese Finance Minister Yoshihiko Noda said financial authorities decided to intervene in the currency markets because the strong yen could hurt the country’s export-dependent economy.

In the United States investors fled Wall Street in the worst stock-market sell-off since the middle of the financial crisis in early 2009 in what has turned into a full-fledged correction.  The Dow and the S&P tumbled more than 4% and the Nasdaq lost 5% on fear the United States is staring at another recession and that Europe’s sovereign debt crisis is killing two of its largest economies.

Analysts predicted further losses even though stocks have fallen on 9 of the last 10 days. Two-year U.S. Treasury yields fell to a record low as investors sought safety in short-term government bonds.

The S&P 500’s drop puts it more than 10% below its April 29^th high of the year, considered a correction – the index has dropped 10% since July 22^nd of this year.  The S&P 500’s valuation to 13.2 times reported earnings, the cheapest level since the month the bull market began in 2009, according to data compiled by Bloomberg.

In short, stocks are dropping from a number of factors. U.S. economic data has worsened, suggesting slowing growth from already sluggish pace in the 1^st half of the year. Europe’s sovereign debt crisis has defied remedies and threatens to engulf large euro-zone economies Spain and Italy.

The Dow Jones industrial average was down 512.46 points, or 4.31%, at 11,383.98, the Standard & Poor’s 500 Index fell 60.21 points, or 4.78%, at 1,200.13 and the Nasdaq Composite Index lost 136.68 points, or 5.08%, at 2,556.39.  Among sectors, losses in energy and materials outpaced others, with S&P energy down 6.8% and materials down more than 6.6%.

The S&P 500 is now down 4.6% for the year, the Dow is down 3.6% for the year and the Nasdaq Composite Index is down 5.08%.

The Chicago Board of Options Exchange (CBOE) Volatility index jumped 35.4% to 31.66; it’s highest since July 2010. It was the biggest rise since February 2007.

Overseas, the European Central Bank signaled it was buying government bonds in response to a deepening European debt crisis.  The MSCI All-Country World Index slid 4.3 percent as Brazil’s stocks slumped to a two-year low and Switzerland’s entered a bear market

Yields on government bonds are dropping - the 10-year U.S. Treasury yield dropped 0.20% to 2.43%, the lowest since October.  Treasury bond yields are plunging to levels seen in the 1950s on concern the 2-year recovery in the world’s largest economy is stalling. Yields on benchmark 10-year U.S. notes are about 4.3% below the average over the past 49 years and almost where they were when President Dwight D. Eisenhower began his administration in 1953. The yield, which dropped to as low as 2.41% today in New York, reached a record low of 2.04% in December 2008 during the global financial crisis.

There is a “wall of worry” at this time within capital markets but ultimately investors must look forward and position themselves for success because investors still need to have the opportunity participate in gains.  The economy might slow but capital markets have already stimulated the economy by reducing interest rates, mortgage rates, gasoline prices etc...  Ultimately, things will find a bottom but prior to finding a bottom investors need some clarity and hope.  Employment numbers will be key but politically stability, regulatory reform and an overhaul of the tax system (in the U.S.) will all help.  There are also some rumors of Quantitative Easing phase III in the United States but these are big things that will take time to formalize and until then, things will remain volatile.

The best opportunities have always materialized during volatile times but it takes courage to move forward when everyone else is heading in the opposite direction.  Have courage but be diversified because things always swing more than investors anticipate.  The current sell-off will challenge investors and new lows may justify new lows.  These things happen from time to time and now we just need a bit of time to allow the “panic” sell-off to work it’s self through.  Things won’t go to zero but… we need some leadership and confidence to come back.

** UPDATE**

Huge payroll numbers this morning – the “risk on trade” is back and futures are up huge!

Futures are signaling the market may rebound from its worst drop in more than 2 years, as stronger-than-forecast growth in jobs eased concern the economy is sliding into a recession.  Futures on the Standard & Poor’s 500 Index jumped 1.4%

Payrolls rose by 117,000 workers after a 46,000 increase in June that was more than originally estimated, U.S. Labor Department data showed today. The median estimate in a Bloomberg News survey called for a July gain of 85,000. The jobless rate dropped to 9.1% as more Americans left the labor force, while average hourly earnings climbed 0.4%.

U.S. stocks plunged yesterday as concern that the economy is weakening extended a global rout that has wiped off more than $4.4 trillion from equity market values worldwide since July 26. The S&P 500 has lost 7.1% so far this week, on course for its biggest weekly selloff since 2008.

U.S. company per-share earnings have grown 18% for the 409 companies in the S&P 500 that reported earnings since July 11^th with 75% beating the average analyst estimate. Sales have increased 13% for the group, Bloomberg data show.

The slide in stocks occurred as data showed manufacturing grew at the weakest pace in 2 years, personal spending unexpectedly fell and service industries grew at the slowest pace since February 2010.

The Canadian economy added jobs in July, building on 3 consecutive months of growth.  Statistics Canada says the country’s unemployment rate fell last month to 7.2% as fewer people entered the workforce.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner

The Canadian stock market closed sharply lower Friday as investors sold off stocks amid worse than expected economic figures for Canada and the United States.  Investors also looked for the next move in resolving the U.S. debt crisis.   The S&P /TSX composite index fell 102.16 points to 12,945.63 or 0.78%.   The S&P/TSX lost 549 points or per 4.06% for the week

Statistics Canada reported that real gross domestic product decreased by 0.3% in May, much worse than the 0.2% gain that had been expected. Growth was flat April.  Other data showed that the American economy grew by 1.3% in the 2^nd quarter versus a rise of 1.8% that economists had expected. First-quarter growth was revised to 0.4% from 1.9%.  In short, things are not growing and bond yields have dropped as a result.

Stock markets have tumbled last week amid increasing pessimism that American legislators can craft an agreement that would let the U.S. debt ceiling rise. Otherwise, the country’s borrowing authority expires today and government debt could go into default later in the month.

House Speaker John Boehner suffered a stinging setback Thursday when, for a 2^nd consecutive day, he had to postpone a vote on his proposal to extend Washington’s borrowing authority while cutting federal spending by nearly US$1 trillion. He was reported to have reworked his plan and was aiming to have a vote late Friday.

Meanwhile, U.S. Senate Majority Leader Harry Reid said he will move ahead with a debt-limit bill that would cut $2.5 trillion from the deficit over a decade and added that he has invited his counterpart, Senate Republican leader Mitch McConnell, to negotiate with him.

In the United States stocks ended the worst week in a year as time runs out on Washington to reach agreement before the government loses its ability to borrow money.

The S&P 500 fell every day of the week and was down 3.9% for the week.  It has frustrated investors and U.S. citizens to see this unfold in the way that it has.  In short, investors move to cash with this kind of uncertainty.

The Dow Jones industrial average markets was down 96.87 points, or 0.79%, at 12,143.24, the Standard & Poor’s 500 Index was down 8.39 points, or 0.65%, at 1,292.28 and the Nasdaq Composite Index was down 9.87 points, or 0.36%, at 2,756.38.  For the week the Dow is down 4.2% and the Nasdaq is down 3.6% for the week.  Major indexes also posted losses for the month: the Dow and S&P 500 each lost 2.2% while the Nasdaq fell 0.6%.  It was the 3^rd monthly loss, the longest losing streak since 2008.

At least one credit rating agency has said it is likely to lower the United States’ prized tripe-A rating if the cuts in Washington don’t go far enough.  Both S&P and Moody’s Investors Service are weighing whether to cut the U.S. credit rating.  Weak economic data also weighed on equities. The U.S. economy stumbled badly in the first half of this year and came dangerously close to contracting in the January-March period.

All these headwinds overshadow a 2^nd quarter earnings season in which per-share profits have exceeded analysts’ estimates at 78% of S&P 500 companies that have reported so far, according to data compiled by Bloomberg.

Yesterday, when the Canadian stock market was closed, U.S. stocks initially rose, indicating the Standard & Poor’s 500 Index may rebound from its worst weekly loss in a year, as President Barack Obama announced a deal to increase the federal debt limit and avoid a default.

Details of the deal are as follows:

• Debt ceiling to be raised by 2.4 Trillion over 2 stages but should suffice the government until after the 2012 elections
• Debt to fall by 917 Billion over 10 years
• Sub-committee comprising half democrats and half republicans to find another 1.5 Trillion in cuts
• If the 1.5 Trillion is not agreed upon by Dec 23, automatic cuts will occur in military spending and entitlements
• No tax increases

Obama said in the White House briefing that Republican and Democrat leaders in the U.S. House and Senate reached an agreement to increase the nation’s debt ceiling by $2.1 trillion and cut government spending by $2.4 trillion or more. The Senate plans to vote on the deal today.

Yesterday the S&P 500 fell for a 6^th day as the economy showed further signs of stalling.  It is a risk on and risk off market that trades on headlines and headwinds.  Investors now believe that the debt limit will be raised, that the vote will be positive in the Senate and positive in the House (as confirmed yesterday), but there’s still a bit of skepticism or caution.  Even though a default was considered unlikely by many investors, the threat of a credit rating downgrade continued to weigh on sentiment after Wall Street marked its worst week in a year last week.

Stocks fell after the Institute for Supply Management (ISM) said the U.S. manufacturing sector grew at the slowest pace in 2 years in July. The ISM report followed similarly weak reports from much of Asia and Europe.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner

Global stock markets dropped today as relief over the rise of the U.S. debt ceiling was countered by rising worries that economic weakness seen in the 1^st half of the year was not just temporary.  The S&P/TSX composite index fell 193.31 points to 12,752.32 or 1.49%.  The S&P/TSX has fallen for 5 of the last 6 trading days, losing 742 points or 5.5%.

Investors faced U.S. data released yesterday that showed the manufacturing sector slowed to within striking distance of slipping back into contraction. The Institute for Supply Management’s (ISM) index on the sector fell to 50.9 during July from 55.3 the previous month, 50 is a contraction.

In short, worry over sovereign debt crises in Europe and the U.S. has persuaded investors to stay sidelined or sell.  In turn, business leaders have become paralyzed and hoard cash versus making investment decisions and waiting out the period of uncertainty.

To compound issues, the American economy showed that Americans cut back on their spending in June for the 1^st time in nearly 2 years and their incomes grew by the smallest amount in 9 months.  The U.S. Commerce Department said consumer spending dropped 0.2% in June while incomes rose 0.1%. It was the weakest growth in income since September, reflecting weak hiring this spring.  This data is particularly bad coming before the release Friday of the U.S. non-farm payrolls report. Job creation hopes were already muted before the ISM report with economists expecting the American economy created about 90,000 jobs during July.

Investors are starting to wonder where the growth is going to come from and there are no clear answers.

The S&P 500 turned negative for the year today as the fighting over the U.S. debt ceiling faded and investors turned their attention to the stalling economy.  The broad-based index fell for a 7^th day and crashed through its key 200-day moving average which is a bad technical sign for markets. The 7 days of losses mark the longest losing streak since October 2008.

The index also broke through its 2-1/2 year uptrend line from its bear market low in March 2009.  Last Thursday was its worst day in a year.

Industrial and consumer discretionary shares, which are sensitive to signs of weakness in the economy, were among hardest hit.   Wall Street’s losses followed sharp falls in world equity markets as global manufacturing data this week indicated big industrial economies were on the verge of stalling.

There is a real possibility that there will be a downgrade of the U.S. government’s triple-A rating.

The Dow Jones industrial average dropped 265.87 points, or 2.19%, to 11,866.62, the Standard & Poor’s 500 Index dropped 32.89 points, or 2.56%, to 1,254.05 and the Nasdaq Composite Index dropped 75.37 points, or 2.75%, to 2,669.24.

Shortly after the Senate vote, Fitch Ratings said the agreement to raise the U.S. borrowing capacity means the risk of a sovereign default is “extremely low” and commensurate with a AAA rating. But it warned Washington must reduce its debt or face a downgrade.

European debt problems returned to the forefront after French bank BNP Paribas SA took a $768.3 million write-down linked to Greece’s debt woes.  European shares hit their lowest close in 11 months, with selling concentrated on Spain as well as Italy which hit a 27-month low.

It will take Q3, a revised debt ceiling deal or some other material event in order to lift stock markets in the short-term but it is clear that stock markets will trade off headlines in the short-term.  Things will be very interesting until the next U.S. presidential election.  Volatility will be offset to some extent once stock valuations become very cheap and with greater sovereign clarity.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner

The Canadian stock market closed in positive territory Friday after investors took in rising commodity prices and mixed Canadian economic data.  The S&P/TSX composite index added 60.33 points to 13,494.63, with the gold-heavy materials index leading the way higher.

The main stock index ended the week 195.09 points, or 1.46% higher.

The Canadian dollar fell following a Statistics Canada report that said the annual inflation rate was 3.1% in June, sliding from 3.7% in May.  Excluding volatile food and energy prices, inflation rose 1.4% from June 2010.

Meanwhile, Statistics Canada also reported that retail sales rose unexpectedly by 0.1% in May from the month before on the back of higher sales of garden equipment and building material.

The Bank of Canada signaled earlier this week that it may raise rates sooner rather than later, but Friday’s inflation data removes some of the urgency to raise rates and curb inflation.

The central bank will also factor in external developments in its September decision, such as an agreement Thursday by European countries on the sovereign debt crisis aimed at avoiding another global economic crisis, and expectations that U.S. policy-makers will be able to reach an agreement to raise the debt ceiling.

In the United States investors pushed tech shares higher on Friday as promising chipmaker earnings and optimism that a solution was on the horizon for the U.S. debt stalemate triggered a move into growth-oriented stocks.  The Dow was held back by Caterpillar with shares of the heavy equipment maker falling on disappointing results. The stock exerted a 48.6-point drag on the Dow, which ended off 43 points.

The benchmark S&P 500 index rose 2.2% for the week, lifted by strong earnings and a new bailout plan for Greece to contain Europe’s debt crisis. Stocks have been restrained, however, by the long slog of negotiations to resolve the U.S. debt crisis.

It is likely that an agreement in any form will cause a relief rally for equities. This in combination with a pretty good earnings season and some sort of resolution in Greece could make for a rally in the market but investors will still on edge and things will be volatile.

President Barack Obama insisted on Friday he was prepared to make “tough choices” for a sweeping deficit-reduction deal to avert a U.S. default, despite Democrats warning him not to make too many concessions.

The Dow Jones industrial average dropped 43.25 points, or 0.34%, to 12,681.16, the Standard & Poor’s 500 Index added 1.22 points, or 0.09%, to 1,345.02 and the Nasdaq Composite Index gained 24.40 points, or 0.86%, to 2,858.83.  For the week, the S&P 500 gained 2.2%, the Dow rose 1.6% and the Nasdaq advanced 2.5%.

The 2^nd bailout for Greece supported sentiment, even as Fitch ratings agency on Friday said Greece would be in temporary default as the result of the new rescue plan. Fitch pledged to give Greece a higher, “low speculative grade” rating after its bonds had been exchanged and said Athens now had some hope of tackling its debt mountain.

Caterpillar, a maker of equipment used in mining and construction, has been an exceptional performer in recent years and was the top Dow stock for 2010, but rising wages and materials costs hit earnings.  Fellow Dow component McDonald’s income topped estimates, sending the stock up. Microsoft posted a greater-than-expected jump in its fiscal 4^th quarter profit but sales of its flagship Windows software disappointed for a 3^rd straight quarter and the stock was up.

This morning:

This morning stock index futures fell sharply as political discussions in Washington over the U.S. debt ceiling sparked fears of a U.S. rating downgrade, sending world equities lower and pushing gold to a record high.

A divided U.S. Congress pursued rival budget plans that appeared unlikely to win broad support, pushing the country closer to a debt default.

Analysts still expect a deal to raise the U.S. debt ceiling by August 2^nd but the impasse pushed the United States one step closer to losing its coveted triple-A credit rating as Democrats and Republicans seemed unlikely to agree on a deal.  White House Chief of Staff Bill Daley warned there would be a “few stressful days” ahead for financial markets. But Treasury Secretary Timothy Geithner was confident a deal would be reached.

The political fighting has weighed on equity markets, but that has been somewhat offset by positive earnings news.

This morning the S&P 500 futures fell 9.6 points, the Dow Jones industrial average futures slid 87 points and Nasdaq 100 futures lost 13 points.

European shares lost ground in early trade, threatening a 1-week rally, as banking stocks dropped.

Gold surged to a record high above $1,620 an ounce in trading, the 5^th record high for bullion in less than 2 weeks.

Also rattling investors, credit rating agency Moody’s cut Greece’s sovereign debt by three notches on Monday to ‘Ca’, just one level above default. Greece has the lowest rating of any country in the world covered by Moody’s.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner

The Canadian stock market index closed up Friday, with strength in energy shares helping to offset government data showing a 0.8% decline in manufacturing sales.   The energy sector led the market higher but has also been fairly hard hit during the correction earlier in the year so there is a bit of a rebound.  The S&P/TSX Composite Index gained 47 points, or 0.4%, to 13,299.50 on Friday and closed down for the week by 0.70%, leaving the main index down 144 points or 1.06% year to date.

In the United States, Google’s blowout quarter led the Nasdaq higher on Friday but mounting uncertainty about the government’s ability to reach a debt-reduction deal may keep investors at bay this week.  The gains were a bright spot in a stretch dominated by selling that pushed the S&P 500 down in its worst week in the last 5 weeks.  Worries about U.S. and European government debt troubles put pressure on the stock market even as investors expect strong earnings this week.

For the week, the S&P 500 ended down 2.1%, while the Dow lost 1.4% and the Nasdaq fell 2.5%.

The stock market has largely ignored the debate in Washington about raising the debt ceiling, which is necessary to avoid a default. But investors say it is dampening enthusiasm even as most express confidence a deal will be reached.

President Barack Obama held a White House news conference on Friday on the talks. Standard & Poor’s warned late on Thursday that there is a 1-in-2 chance it could cut the United States’ triple-A rating if an agreement is not reached soon.

Google Inc’s earnings beat the most bullish forecasts late on Thursday, driving its stock up 13% to $597.62, making it the top gainer in the Nasdaq 100.

The Dow Jones industrial average markets rose 42.61 points, or 0.34%, to end at 12,479.73, the Standard & Poor’s 500 Index gained 7.27 points, or 0.56%, to finish at 1,316.14 and the Nasdaq Composite Index advanced 27.13 points, or 0.98%, to close at 2,789.80.

The European Banking Authority (EBA) said that of the 90 European banks tested, only 8 had failed the “stress tests” performed to determine if they could withstand a long recession. Expectations were for up to 15 banks to fall short.  It is positive that there is more transparency but it will also underscore how weak certain parts of the banks’ balance sheets are.

Energy was a big story on Friday as the worlds largest miner, BHP Billiton, bought Petrohawk for $12 billion and Petrohawk’s shares jumped 62.5%.  Consumer discretionary stocks were among the biggest drags after U.S. consumer sentiment hit its lowest level since March 2009.

Going forward:

This week gains will likely be elusive on stock markets this week, despite a strong start to the 2^nd quarter earnings reporting season, as worries about massive government debt shift to the United States.

Investors already worried about the possibility of a Greek default and sharply higher borrowing costs for Italy and Spain were further frustrated last week as Republicans and Democrats appeared no closer to coming to an agreement to raise the US$14.3 trillion debt ceiling.

The deadline for raising the debt limit is August 2^nd and the longer there’s no resolution the more nervous the markets get.

The suspense over what happens next in Washington has overshadowed by a very positive start to the slew of 2^nd quarter earnings reports that started crossing investors’ desks last week. Aluminum giant Alcoa, banking giants JPMorgan Chase and Citigroup along with Google Inc. and Mattel Inc. all handed in earnings reports that beat forecasts.

Meanwhile, traders are also looking to the big event on the Canadian economic calendar this week, the Bank of Canada’s announcement on interest rates on Tuesday.  It’s all but certain that the central bank won’t raise its key rate from its current 1.0% level. What is uncertain is what the Bank of Canada may signal about when those rates will go up.

Economists point out that rates at these very low levels raise the risk of causing speculative bubbles.  Others make the point that it would be far too dangerous for the bank to raise interest rates with so much global uncertainty.

This morning:

This morning stock index futures dropped with no deal in sight on raising the U.S. debt ceiling and investors still worrying about ongoing fiscal problems in Europe.  An expected strong earnings season could lift equities this week, though encouraging results last week from Google Inc. and JPMorgan Chase & Co were overshadowed by macroeconomic headwinds that gave the S&P 500 its worst week in 5.

With five days remaining before U.S. President Barack Obama’s deadline for a deal to raise the government’s debt ceiling, Republicans and Democrats were still divided on current plans to cut the nation’s deficit and raise the debt limit in time to avoid an unprecedented default. That outcome was seen as unlikely but yet…. No deal?  North America stocks are looking to open down by about 0.50%.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner

The Canadian stock market closed lower Friday as pressure from a weak U.S. employment report offset upbeat June data on the Canadian jobs market. Statistics Canada reported that 28,400 jobs were created in Canada in June, almost twice the number of new jobs analysts were expecting, while just 18,000 jobs were created in the U.S.  The S&P/TSX Composite Index fell 0.3%, to close at 13,371.70.

Stock markets have been treading for several weeks on worries that the global economic growth is slowing and whether Greece will be forced to default on its massive debt. The TSX ended the week up 71 points or 0.5%, with a big part of that advance due to a stronger than expected manufacturing report from the Institute for Supply Management last Friday. But the gain still left the TSX stuck about 70 points lower than where it started the year.  It looks like we’re in a period where things are struggling and we could continue to struggle.

However, there are a couple of good things including that we are seeing commodity prices come back down which should tame inflation.

The major concerns for the Bank of Canada at the moment are international factors including the slowdown of U.S. employment and the threat of euro-area contagion.  The strong Canadian jobs data would argue for the Canadian dollar and rate hikes, but it’s not going to be enough to substantially change interest rates in the short-term with all the ‘white’ noise from the rest of the world.

In the United States stocks fell on Friday as a weak jobs report killed optimism that the economy was emerging from a soft patch, leaving investors to hope earnings season would revive an appetite for buying.  The sell-off was broad and halted an 8-day streak for the Nasdaq, though stocks ended off their lows. U.S. employers added only 18,000 workers in June, short of even the lowest forecast, hitting bulls who had rushed into the market after some encouraging employment figures earlier in the week.

Despite the day’s drop, the three major U.S. stock indexes ended higher for the week. The market is coming off a string of gains that reflected increased hope for an economic rebound and a strong earnings season.

Investors are hoping for better-than-expected earnings and revenue during the earnings season which will hit this week and combined with the current valuation of the market some investors will buy.  The S&P 500 components are expected to show earnings growth of an average of 7.3% in the 2^nd quarter, but estimates have been lowered in the last 30 days.  If they are lowered further then stocks would incur another setback.

The Dow Jones industrial average slipped 62.29 points, or 0.49%, to 12,657.20, the Standard & Poor’s 500 Index dropped 9.42 points or 0.70% to 1,343.80 and the Nasdaq Composite Index dropped 12.85 points, or 0.45%, to 2,859.81.  For the week, though, all three major U.S. stock indexes rose, the Dow advanced 0.6%, while the S&P 500 rose 0.3% and the Nasdaq gained 1.6%.

Alcoa Inc is scheduled to report results today as earnings season begins. Among other companies on tap to report this week are JPMorgan Chase & Co., Citigroup Inc. and Google Inc.

President Barack Obama cited the gloomy jobs report as one more reason lawmakers must strike a deal soon to raise the U.S. debt limit, saying the impasse was fueling uncertainty within financial markets and in the business sector.

This morning stocks and stock futures dropped by more than 1.00%, pressured by growing fears about the potential spread of the euro-zone debt crisis to nations such as Italy and Spain. Chinese inflation data and a much weaker-than-expected U.S. jobs report further undermined investors’ appetite for assets perceived as risky such as stocks and commodities.

Greek debt is attracting attention because, unlike last week, this morning the idea of a default is now something that is admissible as part of a bailout or at least that is what the discussion seems to be about.  The Financial Times, citing unnamed sources, reported late Sunday that European leaders have changed their position and are now willing to accept some form of Greek debt default as part of a new bailout for the debt-strapped nation.

The United States will need to raise their own debt ceiling shortly and address comparable issues within the largest economy in the world.

Anything can happen these days and investors should adjust their investment portfolio accordingly.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner

The Canadian stock market ended up Thursday with a 4^th consecutive daily gain.  The S&P/TSX composite index added 111.93 points to 13,300.87, with every sector posting gains just before the market closed ahead of the long, Canada Day weekend.  The index ended the week up 391.98 points or about 3.0% for the week, with Thursday marking the end of the month and the end of the quarter when investors often book profits or window dress their portfolio. Canadian markets were closed Friday for Canada Day while U.S. markets are closed today for the July 4^th holiday.

Investors appreciated the modest Canadian economic growth data but more specifically the news that Greece’s controversial austerity measures will go ahead. A pickup in manufacturing in the U.S. also pushed indexes higher.  The Greek parliament had passed a 2^nd austerity law, the last hurdle before Athens receives critical bailout funds.

Greek lawmakers passed a cost-cutting bill that had been working its way through that country’s parliament since Tuesday. The bill, which has caused violent protests in Greece, had to be approved before international lenders would release US$17 billion in rescue funds that the country needs to avoid defaulting on its debt.  A default by Greece would disrupt financial markets and lead banks to freeze lending to other heavily indebted European countries.

The passage of that bill has eased some tensions in global markets and is behind much of the solid performance on North American equity markets, which have now risen for four consecutive days (five if you include Friday when Canadian stock markets were closed but global markets were open).

Investors appear to be more confident in the global recovery and have been more inclined to take risks in the past week, a shift that is also largely responsible for a rise in asset prices recently.  Oil has moved from a recent low of US$90 a barrel to $95 a barrel in the past 3 days and copper prices have also increased considerably.

In the United States stocks started July with a bang on Friday with Wall Street posting the best week in 2 years on strong manufacturing data that eased concerns about slowing growth.  The data spurred the stock market rally into a 5^th straight day.

Investors are growing more optimistic. The S&P 500 climbed further above resistance at its 50-day moving average at 1,317, establishing another floor in the market after the benchmark index moved above a number of technical resistance levels.

The pace of growth in manufacturing picked up for the 1^st time in 4 months, with an index of national factory activity rising to 55.3 in June from 53.5 in May, Institute for Supply Management (ISM) data showed.  The ISM survey built on surprisingly strong regional business data, reversing a recent trend of weaker-than-expected data.  This week’s ISM non-manufacturing survey would prove more important for investors.

The Dow Jones industrial average was up 168.43 points, or 1.36% at 12,582.77, the Standard & Poor’s 500 Index was up 19.03 points, or 1.44% at 1,339.67 and the Nasdaq Composite Index was up 42.51 points, or 1.53%, at 2,816.03.  The S&P rose 5.6% for the week, while the Dow gained 5.4% and the Nasdaq added 6.2%. For all three indexes, it was their biggest weekly percentage gain since July 2009.

This week investors will return from their respective patriotic holidays to a week heavy with economic data that will provide a clearer picture of how the economy is faring, culminating in Friday’s release of June jobs figures.  Investors will take in Canadian data on industrial products and raw materials, followed by building permits and the new home price index. Reports from the United States will include factory orders, the non-manufacturing ISM survey, wholesale inventories, and consumer credit.

However, the watched reports will come at the end of the week, when both the U.S. and Canada are slated to release employment figures for June. The outlook for job prospects both North and South of the border are not great.  Economists expect jobs gains in the U.S. to be soft on the back of weak 2^nd quarter economic data. The consensus call is for 90,000 net new jobs, up from the 54,000 jobs created in May but not enough to bring the unemployment rate down from the current 9.1%.  There are concerns that the U.S. economy will take longer than expected to return to health.  In Canada, economists, on average, expect the economy churned out 15,000 net new jobs in June, down from 22,000 in May. That would effectively push the unemployment rate up a notch to 7.5% from the current 7.4%.

Last week a Statistics Canada report showed inflation grew more than expected in May, suggesting the Bank of Canada might have to hike interest rates earlier than expected. Another report from the federal agency showed real gross domestic product growth was unchanged in May, slightly better than the 0.1 per cent decline economists had expected.  A strong jobs report could push the Canadian dollar higher yet in the near-term.

On the economic front we have hit a soft patch but things are expected to get a bit better from here on in.

Soon investors will be able to analyze 2^nd quarter earnings results and guidance revisions from companies reporting.  The number of downgrades and revisions reported by both U.S. and Canadian companies will send a signal about where the 2^nd quarter earnings season.

Stocks are still below the 2011 highs they reached in late April, when a number of factors caused investor jitters, including economic data indicating a slowdown in the U.S. economy, a resurgence of worry over the European debt situation and the fallout from Japan’s earthquake and tsunami.  Since then investors have been debating whether or not the slowdown would be a short-term blip before the recovery gets back on track.

This morning things are looking to open higher. Oil rose as investors grew confident over the prospects for the global economy after Greece avoided an early default on its debt and data pointed to a moderate slowdown in China’s growth.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner

The Canadian stock market was little changed Friday as a disappointing outlook from Research In Motion (RIM) triggered a 21% decline in the BlackBerry maker’s stock while investors felt a bit better that Greece could avoid a default on its huge debts in the short-term.

The S&P/TSX composite index fell 63.17 points to 12,789.95.  Investors sentiment improved after Germany calmed fears that it wanted to force losses on Greece’s private creditors. The German government has come to an agreement with France that any private sector involvement should be voluntary as part of a new rescue plan European countries are preparing.  A default could spark further panic as financial markets hit banks in Greece and across Europe and also have a knock-on effect on other struggling European economies such as Portugal, Spain and Ireland. This could even put the U.S. back into recession.  The debt crisis escalated in the week as Moody’s Investors Service said it may cut the credit ratings of French banks, citing exposure to Greek debt. Late Friday, Moody’s said it was reviewing Italy’s sovereign credit ratings for a possible downgrade.

The Toronto stock market and other stock markets around the world have been hard hit with above average volatility last week led by worries that Greece might default. The S&P/TSX fell 2.24% for the week, its 3^rd straight weekly decline.  The price of oil hit US$93.01 a barrel and fell 6.3% within the week.  The index posted the 11^th loss in 13 trading days this month. The index is down 7.3% for the month and year to date, the S&P/TSX is almost 5% lower, and off more than 10% from the 2011 high reached in March.

Greek Prime Minister George Papandreou has struggled to solicit support for a crucial new package of euro 28 billion (US$39.5 billion) in spending cuts and tax hikes demanded by the EU and IMF. The package must be voted through parliament if the country is to continue receiving funds from its bailout.  Stock investors dislike uncertainty and there is lots of uncertainty.

In addition, stock markets have also been under pressure from data showing that the U.S. economy is slowing.  Economic data was mixed, with the index of leading economic indicators rising more than forecast in May to a record high, but U.S. consumer sentiment for June was weaker than expected.

In the United States, the Dow and S&P 500 rose on Friday after France and Germany outlined an agreement to aid debt-burdened Greece, but analysts warned that the recent bearish trend may not be over.

The Dow managed to close just above 12,000, but the S&P 500 barely squeaked out a gain for the week after 6 straight weeks of losses. The uncertainty surrounding a resolution of the debt crisis kept investors wary of committing more cash to equities or increasing their exposure to the risk trade as investor’s trade off headlines.

The Dow Jones industrial average rose 42.84 points, or 0.36%, to end at 12,004.36, the Standard & Poor’s 500 Index gained 3.86 points, or 0.30%, to 1,271.50 and the Nasdaq Composite Index fell 7.22 points, or 0.28%, to 2,616.48.  Both the Dow and the S&P 500 finished the week with gains and broke a 6-week string of losses.  The Dow was up 0.4% for the week, while the S&P 500 was up just 0.04% and the Nasdaq lost 1% for the week.  For the year, the Nasdaq is down 1.4% but the Dow is up 3.7% for the year and the S&P 500 is up 1.1%.  The S&P 500 is roughly 7% below a 3-year high hit in early May, and many strategists see a test of 1,250 on the index as likely.

Global Growth:

The International Monetary Fund (IMF) cut its forecast for U.S. economic growth on Friday and warned Washington and debt-ridden European countries that they are “playing with fire” unless they take immediate steps to reduce their budget deficits.  The IMF, in its regular assessment of global economic prospects, said bigger threats to growth had emerged since its previous report in April, citing the euro zone debt crisis and signs of overheating in emerging market economies.

The IMF forecast that U.S. gross domestic product (GDP) would grow 2.5% this year and 2.7% in 2012 but in its forecast just 2 months ago it had expected 2.8% and 2.9% growth, respectively.  With regard to the global economy overall, the IMF stated that the slowdown of recent months should be “temporary.” It trimmed its forecast for global growth this year only slightly, to 4.3% from 4.4%, and maintained its estimate for robust Chinese growth of 9.6% despite recent signs of a slowdown there.

The global outlook could quickly fall apart if politicians in the United States and Europe do not start showing more leadership in addressing their countries’ debt problems, the IMF warned.  “You cannot afford to have a world economy where these important decisions are postponed, because you’re really playing with fire,” said Jose Vinals, director of the IMF’s monetary and capital markets department.

In the United States, the political problems include a fight over raising the legal ceiling on the nation’s debt. A 1^st ever U.S. default would hurt capital markets.

Stock Market Trends:

The S&P 500’s 200-day moving average is the line that the bulls and the bears fight over the U.S. stock market’s direction. It will face one of its stiffest tests this week with Greece’s debt crisis appearing to reach a climax.  The benchmark S&P 500 hit its lowest point right on its 200-day moving average in volatile trading last Thursday. The index then rallied 1% from that day’s low to close on Friday at 1,271.50. It also scored its 1^st weekly gain in the last 7 weeks.

At Friday’s close, the S&P 500’s 200-day moving average was around 1,259. If the level holds, it could be a springboard for stocks to rally.

Most economists are overwhelmingly skeptical that Greece can ever repay its mountain of debt, which has reached 340 billion euros — or 150% of the country’s annual economic output or GDP.

Some investors believe the European Union will rescue Greece without major disruption to markets and are using the drop in equity prices as a buying opportunity.  A slew of data showing the United States is on the verge of a slowdown has already done its damage to the stock market. After the heavy selling of the past several weeks, it seems investors are taking a wait-and-see approach at this time.

There is so much uncertainty that it is probably not prudent to make big bets but things should settle down towards the end of the year.

Some analysts attribute much of the market’s turmoil to the end of the Federal Reserve’s asset-purchase program, known as quantitative easing, or QE2. That will come to a close at the end of the month.   Investors will be looking to Chairman Ben Bernanke to reassure markets after the Fed’s 2-day meeting ends on Wednesday.

This Morning:

The Toronto stock market headed for a lower open as a stronger U.S. dollar pushes oil prices down.  The Canadian dollar lost ground as risk-averse traders bought into the American currency after a weekend meeting of eurozone finance ministers failed to agree on an immediate release of bailout funds to Greece.  Though the finance ministers of the 17 countries that use the euro agreed to hand over the next bailout installment, worth euro12 billion (US$17 billion), they said they would only do that if the Greek Parliament backed further austerity measures.

Investors need a little boost from the Central Banks, sovereign leaders or corporate earnings in order to lift markets again.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner

The Canadian stock market closed sharply lower Friday at the end of another negative week as rising worries about slowing economic global growth pushed stocks lower.  The S&P /TSX composite index dropped 171.74 points to 13,084.  The United States, China and India are slowing their growth and they’re doing it intentionally in China and India.   The Chinese government has been moving to cool its economy in order to bring down high inflation, particularly rising food costs, through higher interest rates and higher reserve requirements for banks.  However, imports continue to expand at a rapid pace suggesting the economy may not be cooling as quickly as some had believed.   That said, China’s sales to the United States and the European Union slumped to their weakest since late 2009.

Statistics Canada said 22,300 new jobs were created last month, slightly above consensus estimates following the previous month’s strong 58,000 gain. The unemployment rate fell 0.2% points to 7.4%.  The energy sector fell almost 2% as oil prices dropped following two strong days of advances that followed a surprise decision by the OPEC cartel to maintain current production levels.

The TSX fell 434 points or 3.2% for the week, on top of a 2% drop the previous week, investors continue to be cautious in the wake of a string of economic data that have pointed to a U.S. economy that is slowing faster than previously thought.   This string of losses has left the S&P/TSX about 1,200 points lower or 8.7% below its highs for the year and more than 350 points below where it started the calendar year 2011.

Investors started the week in a negative mood following a much worse than expected May employment report out of the U.S.  Investor pessimism deepened after the U.S. Federal Reserve’s latest cross-country survey of economic conditions, the so-called Beige Book, said that the economy slowed in several U.S. regions this spring. High gasoline prices weakened consumer spending and the Japan crises reduced manufacturing output.

In the United States the Dow and S&P 500 closed out their 6^th straight week of losses on Friday as further signs of a global economic slowdown set the stage for more losses ahead.  The deepening gloom raised the prospect for the S&P, which suffered its worst week since August 2010, to break below the year’s low of 1,250 this week.  The Nasdaq wiped out its yearly gains for 2011 on Friday and also posted its biggest weekly decline since August 2010, as the latest deterioration in investor sentiment came on fear of Chinese growth and fresh worries about Greece’s debt crisis.

The Dow closed below 12,000 for the 1^st time since mid-March.  The Dow Jones industrial average fell 172.45 points, or 1.42%, to 11,951.91, the Standard & Poor’s 500 Index slid 18.02 points, or 1.40%, to 1,270.98 and the Nasdaq Composite Index dropped 41.14 points, or 1.53%, to 2,643.73 at the close.  For the week, the Dow was down 1.6%, the S&P 500 was off 2.2% and the Nasdaq was down 3.3%.

The S&P 500 has fallen about 6.6% from its intraday peak early last month. Many see the benchmark index sliding back down to around 1,250, its March low, where valuations could bring investors back into equities.  At 1,250, the S&P 500 would be roughly 1.7% below current levels and approaching a 10% decline commonly referred to as a correction.  Investors are very susceptible to any kind of news and since some argue that we are oversold at these levels we could see the market instantly bounce back if we get any news that is remotely positive.

The Canadian stock market looks set to drop further into negative territory as investors, already cautious because of slowing economic conditions, are unlikely to find solace from U.S. economic reports coming out this week.  The worst news is likely to come from the retail sector as we are actually seeing a decline for the 1^st time in 10 months.  Retailers are feeling the pinch as consumers concentrate on paying down debt and fail to find confidence from slowing economic conditions, including a sudden drop off in job creation last month.  High gasoline prices weakened consumer spending and the Japan crises reduced manufacturing output.

Other data is expected to remind investors that the housing sector continues in a deep slump in the United States.  Markets will also get an indication of consumer confidence when the University of Michigan releases its index on Friday. But expectations are minimal.

On a brighter note, the latest consumer price index (CPI) data for May shouldn’t cause the Federal Reserve any headaches.  Inflation rose 0.4% during April, pushed higher by higher oil and gasoline prices but the rate for May is expected to moderate to 0.1%.  Energy has been a main driver of CPI in recent months so energy is likely to become less of a factor in May because of falling gasoline prices.

In Canada, the major report of the week is manufacturing sales on Wednesday. Economists look for sales to decline 1.6% as the sector reflects the supply chain interruptions in Japan that resulted from the huge earthquake and tsunami in March.

Analysts think stock markets are in for further declines during the summer as the latest round of quantitative easing in the U.S. concludes at the end of June and investors continue to fret over weak economic numbers and the European debt crisis.

In the United States the economic data and the heated debate on Capitol Hill over raising the U.S. debt ceiling will likely be the biggest market news for the week, as investors brace themselves for a possible 7^th straight week of losses.

Global economic reports are scheduled to be released this week which could lead to further stock market declines if they underscore concerns that a global economic slowdown is under way.  We have bank rules, the U.S. debt ceiling, low loan growth or credit, government deficits, sovereign debt issues, high unemployment or under employment, retail -sales figures, more development of bank regulations and some key data points regarding the health of the economy to worry about.  We are in between earnings seasons and investors are very focused on the economic data.  Investors are concluding that the global economy is hitting a soft patch.

This morning stocks are looking to open mixed globally but volatility will remain elevated.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner

Canada’s stock market fell on Friday as disappointing U.S. jobs data dampened investor sentiment, though a rise in gold prices helped erase large early losses.  Investors were shocked to learn that employment growth in the U.S. economy has slowed, the U.S. created just 54,000 jobs in May, well below the reduced expectations that followed an employment report from payrolls firm ADP earlier in the week and only quarter of the jobs created the previous month. Stocks initially fell more than 1% after a report showed U.S. employers hired far fewer workers than expected in May and the jobless rate climbed to 9.1%, stoking worries of continued economic weakness.

In short, certain investors are concerned that this in more than just a ‘soft’ spot but rather a prelude to a double dip recession.  The Toronto Stock Exchange’s S&P/TSX composite index was 0.01%.  The index has so far fallen 2% on the week. On Wednesday, the index saw its biggest single day drop since last August.  The S&P/TSX is down 5.65% from the highs of early March before the earthquake and Tsunami in Japan depressed stock markets globally.

The Toronto stock market could be in for further losses this week and may test further recent lows including the lows of the year after major disappointments in manufacturing and job creation deepened investor pessimism about the strength of the U.S. economy and corresponding economic growth or lack thereof.  The U.S. is Canada’s largest trading partner and any negative news will eventually impact Canada.

Investors will have ample opportunity to consider the strength of the economy.  The major piece of economic news this week will come on Friday as Statistics Canada’s releases its labour force survey for March.  Investors will also likely be taking in some glum Canadian employment numbers at the end of the week.  It expects that the Canadian economy created about 5,000 jobs last month, against the 58,300 in April.  A variety of factors has contributed to slower job creation, including terrible weather, a drop in auto production which reflected a Japanese industry still dealing with supply issues and below average U.S. job creation.

In the United States Wall Street capped off a 5^th straight week of losses on Friday and Government Treasuries rose as much slower-than-expected U.S. job growth stoked fear that the world’s largest economy was in a protracted slowdown.  The euro hit a 1-month high against the dollar on news international aid would be available to Greece as early as July, while the U.S. jobs data hurt the U.S. greenback against the yen.

Oil prices initially dropped by a large margin but traded off their lows after the Institute for Supply Management (ISM) said the U.S. services sector staged a modest recovery last month from April’s slump.  Although, this is a positive it was not enough to cancel investor unease stoked by the U.S. Labor Department’s monthly report, which showed the economy added the fewest jobs since September.

The jobs report contributed to a growing list of negative data reflecting a definitive soft patch in the U.S. economic recovery which includes housing, employment, manufacturing and consumer spending data.  Nonfarm payrolls increased by 54,000 last month.  Economists polled by Reuters had expected payrolls to rise 150,000.

Wall Street’s benchmark S&P 500 closed down 12.78 points, or 0.97%, at 1,300.16 (key psychological milestone). For the week, it was about 2.3% lower, marking a 5^th straight week of declines and its worst week since mid-August of last year. The index is down about 5% from its late-April high.  The Dow Jones industrial average closed down 97.29 points, or 0.79%, at 12,151.26 and the Nasdaq Composite Index closed down 40.53 points, or 1.46%, at 2,732.78.

Unease about the U.S. outlook boosted the benchmark 10-year U.S. Treasury note to yield of 2.99%.  Ten-year yields fell below 3% last week for the first time since last December as investors grew anxious about the economy.

Investors will need to take some time to determine if this is a slow patch right now and if that is temporary or whether it is actually a change or a bump in the road for the economic recovery.  The Fed’s $600 billion bond-buying program, known in the market as QE2, is scheduled to end this month. The program has flooded financial markets with dollars since October, driving most of the gains in stocks and commodities.  The S&P 500 is up more than 20% since last August even after factoring in the most recent pull back.

More bad days may be in store for stocks in coming weeks, but investors are not pressing the panic button. Not yet.  The 5% drop in the S&P 500 from last month’s high is halfway toward the market’s definition of a stock market correction, a 10% fall from a recent peak.  Many investors displayed caution rather than distress. Most see the recent data confirming a soft patch, or slowdown, others say the economy may be headed for a double-dip recession.  The sharp fall in bond yields also points to a similar concern, but a full-blown downturn in equities is not in going to happen yet, analysts say. For the year, stocks are still positive, with the Dow up 5%, while the S&P 500 and the Nasdaq are each up about 3%.

Investors do agree that stock markets will be volatile. Investors will be looking for validation that this is just a soft patch not a recession.  Some investors and analysts agree that the stock market could see further declines from sovereign debt problems in Europe or a spillover of violence in Yemen into Saudi Arabia, which could lift oil prices, hurting the consumer.

The lack of market-moving economic data or corporate earnings this week could also make nervous investors hit the sell button more often than not. But the market norm of “buying the dip,” which has worked since the Fed started round two of its quantitative easing in August could prevail.

This morning stock markets are expected to open lower.

Regards,

Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA

SVP & Partner