U.S. stocks faltered, but nothing like many people expected when the morning bell arrived, as the debt-ceiling issue remains in limbo.  The political drama continues as Boehner and Reid held dueling pressers yesterday.

Now though, as the supposed deadline was set for August 2, due to higher tax revenues over the past couple of weeks, the deadline has been moved out to August 10.  No matter the date, something will be pulled from the hat to make sure bond redemptions and interest payments are paid – and I still believe a debt-ceiling deal (albeit without budgetary substance) will get done by next week; if I’m wrong, then the market sells of by 5-10% and they rush to raise the debt ceiling the following day.

Utilities ended the session as the only major group to close higher; industrials and tech also outperformed the overall market.  Telecoms, health care and consumer staples were the hardest hit.

Even with the decline in stocks, the price of crude held the $99 handle.  This morning the national average pump price is $3.69.

On the European scene, Moody’s cut Greece’s debt rating another three notches to the second-to-lowest level available (deep junk), warning that the EU’s latest bailout deal implies default.  The interest-rate spreads of Spain and Italy widened yesterday but do remain narrower than the historic wides hit early last week.

I read, courtesy of Dow Jones, that the Italian government canceled their August medium and long-term bond auctions, supposedly hoping for better yields in September as the bailout fund may be outright buying Italian debt by that time.  Of course, they continue to burn cash so even more will be riding on the following month’s auctions.  Good luck, Italy.  Correction: Good luck Germany; they’re the backstop.

Market Activity for July 25, 2011

Sector Activity for July 25, 2011

Chicago Fed National Activity Index

The Federal Reserve Bank of Chicago’s gauge of economic activity (not to be confused with the regional Federal Reserve Banks’ factory-specific gauges, this one is a measure of the entire economy) posted a reading of -0.46 for June after the -0.55 in May.  A number below zero suggests that the economy is growing at a below-trend rate – but we already knew that.

The more important aspect of this report (which pulls from 85 different economic indicators) is the three-month average.  The gauge has deteriorated to a reading of -0.60, which is the worst level since October 2009; however, back then the gauge was on the rise from the depths of the deepest recession since the Great Depression years.

A reading of -0.70 suggests that, after a period of economic expansion, there is an increasing likelihood that a recession has begun.  So, that’s the number we’ll be watching.

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900