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Positive EU

Stocks logged an uncharacteristically successful June, as the Dow had its highest monthly gain since 1997. On the month, the Dow finished up 3.93 percent, the S&P rose 3.96 percent, and the Nasdaq grew 5.06 percent. The indexes were bolstered by a landmark European debt deal on June 29, which helped sooth investor fears that default from Spain or Italy was imminent without EU action. In response, the Dow had its second biggest jump in 2012 and the benchmark German stock index rose 4.3 percent.

(We spent a great deal of time with the European debt deal article… check it out to learn more about the trouble with EU integration).

Despite the good news out of Europe and accompanying strength of stocks, momentum in the market could be undercut by poor second quarter earnings reports, a slowdown in manufacturing growth, and poor jobs reports.

Consumer spending, which accounts for over two-thirds of U.S. economic activity, fell to its lowest level in six months in May. Likewise, consumer sentiment (confidence) dropped to a six-month low.

While these indicators suggest a slowdown, Wall Street has “trimmed earnings forecasts only modestly… down just 0.8 percent from the forecast three months ago” according to the Wall Street Journal. Later, the article notes that 74 S&P 500 companies have lowered their second-quarter forecasts, while 28 have raised them.

Today, the Institute for Supply Management published its index of manufacturing activity, and it showed its first June contraction in two years. Construction spending increased to its highest level since December 2009, but alarm over the manufacturing report weighed stocks down to begin July trading. At the time of this writing, the Dow had fallen over 55 points.

The June jobs reports and weekly unemployment data will provide further context to the economic situation.  Other concerns: Europe (which we have covered) and China, whose growth J.P. Morgan estimates fell 0.2 percent to a 6.6 percent annual rate next year.

The 10-year Treasury yield fell to 1.586 percent, as investors moved on concern about the U.S. economy and forthcoming earnings reports. Mortgage rates continue to yield to downward pressure, and we can again point to improvements across the board. For more, see HERE.

Written by Central Coast Lending - Go to Central Coast Lending's Website/Profile