When it comes time to plot out your investment strategy, you probably focus most of your attention on how equities are doing and pay scant attention to the inner workings of bonds. But ignore the fixed-income market at your peril.
Trends in bond yields will often give you a better sense of the risks in the economy -- and by extension, your portfolio -- than stock prices can. Why? Equity investors are owners who care mostly about the upside potential of their holdings. Bond investors, by contrast, are creditors. They're worried about anything that could prevent them from getting paid back their money. So fixed-income investors are far more attuned to the current and near-term risks in the economy.
You don't need to be a credit expert to read the bond market's tea leaves. But it is helpful to brush up on basic concepts. The most important thing to remember is that bond prices and yields move in opposite directions. So when the demand for bonds grows and prices rise, yields will fall. That happened in last year's panic, when investors raced into safe 10-year Treasuries, driving down yields from nearly 4% to 2%.
With that in mind, here are two key trends to pay attention to.
The yield curve
Will the economy ever rebound? According to bond traders, it has already begun to do so. You can tell by looking at the yield curve, the spectrum of rates paid by short- and long-term bonds.
Since longer-dated bonds typically pay more than short-term debt, the yield curve usually slopes upward. But in August 2007, it was flat, with yields on 10-year Treasuries just two-tenths of a point higher than two-year notes. That's a sign of economic uncertainty, since it means scared investors are buying up bonds and weighing down long-term yields, just like last year.
What it's saying now. Today 10-year Treasuries are paying 2.6 points more than two-year notes, creating a steeper curve, a harbinger of growth. Still, don't assume the recovery will unfold quickly. The yield curve is sloping today not because 10-year yields have risen in a rapidly expanding economy, but because the Federal Reserve has been keeping short-term rates artificially low. "The Fed is sitting like a 10-ton elephant on the short end of the curve," says Carl Kaufman, manager of the Osterweis Strategic Income Fund.
What it means for you. In a slow recovery you want to invest in financially strong firms that offer the potential for stable, dependable growth and solid dividends. Vanguard Dividend Growth (VDIGX) offers a low-cost way to do just that.
The high-yield spread
Is the credit crisis over? Check the high-yield or junk bond spread - the gap between rates that corporations with shaky finances must pay their bondholders and yields on 10-year Treasuries. Last fall, junk bonds were paying out a record 22 points more than Treasuries, a sign that fixed-income traders were bracing for the Great Depression II.
What it's saying now. That spread has shrunk to less than 10 points, so fear has clearly subsided. But that's wider than the historic median of five points, so bond traders still think credit concerns exist.
What it means for you. With doomsday scenarios behind us, high-yield bonds have soared 30% this year. But it will take a big improvement in credit to justify further gains. So stick with funds that invest in safer, high-quality bonds. A good example: FPA New Income (FPNIX), which is in the Money 70, our list of recommended mutual funds.
Monday, August 31, 2009
Monday, August 24, 2009
Stocks set to stretch rally
U.S. stocks were poised to start the week on solid footing Monday, as hopes for a global economic recovery boosted the confidence of investors worldwide.
At 7 a.m. ET, Dow Jones industrial average, Nasdaq 100 and Standard & Poor's 500 futures were higher.
Futures measure current index values against their perceived future performance and offer an indication of how markets may open when trading begins.
Wall Street soared Friday after Federal Reserve chief Ben Bernanke said the economy is near a recovery and existing home sales posted their biggest jump in two years.
"At the moment, it looks like we're headed for a higher opening," said Peter Cardillo, chief market economist for Avalon Partners. "Certainly you can make a case for an overbought market. But the bulls have the momentum."
0:00 /3:09Flirting with a double dip
World markets: The upbeat mood spread overseas, with global markets rallying on Monday. In Asia, Japan's Nikkei surged 3.4% and Hong Kong shares jumped nearly 2%. European markets were in positive territory in morning trading.
Economy: No major economic reports are on tap, giving investors an opportunity to mull the latest spate of readings. Last week, reports on housing and manufacturing showed surprising gains.
Oil and money: Stronger crude prices have helped support recovery hopes. On Monday, oil futures slipped 8 cents to $73.81 a barrel in electronic trading. The dollar rose against the yen, the euro and the British pound.
At 7 a.m. ET, Dow Jones industrial average, Nasdaq 100 and Standard & Poor's 500 futures were higher.
Futures measure current index values against their perceived future performance and offer an indication of how markets may open when trading begins.
Wall Street soared Friday after Federal Reserve chief Ben Bernanke said the economy is near a recovery and existing home sales posted their biggest jump in two years.
"At the moment, it looks like we're headed for a higher opening," said Peter Cardillo, chief market economist for Avalon Partners. "Certainly you can make a case for an overbought market. But the bulls have the momentum."
0:00 /3:09Flirting with a double dip
World markets: The upbeat mood spread overseas, with global markets rallying on Monday. In Asia, Japan's Nikkei surged 3.4% and Hong Kong shares jumped nearly 2%. European markets were in positive territory in morning trading.
Economy: No major economic reports are on tap, giving investors an opportunity to mull the latest spate of readings. Last week, reports on housing and manufacturing showed surprising gains.
Oil and money: Stronger crude prices have helped support recovery hopes. On Monday, oil futures slipped 8 cents to $73.81 a barrel in electronic trading. The dollar rose against the yen, the euro and the British pound.
Friday, August 21, 2009
Bernanke: Economy could grow soon
Federal Reserve Chairman Ben Bernanke said that the U.S. economy is about to start growing again, although he cautioned it will be a slow recovery with continued high unemployment in the near term.
Speaking at an annual symposium in Jackson Hole, Wy., Bernanke echoed a statement made by the Fed earlier this month, saying that "economic activity appears to be leveling out, both in the United States and abroad."
Bernanke went a step further though, indicating that "prospects for a return to growth in the near term appear good."
But the central bank chief warned that problems remain in financial markets around the globe, and that with banks facing "substantial" additional losses ahead, businesses and consumers will continue to have trouble accessing credit.
"Because of these and other factors, the economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels," he cautioned.
Bernanke spent much of the speech reviewing the economic crisis that unfolded last September in the wake of the bankruptcy of Lehman Brothers and near collapse of insurer AIG (AIG, Fortune 500).
He defended the actions of the Fed, Treasury Department and Congress, as well as major governments around the world, in their response to the crisis. He said those actions likely prevented the financial panic from plunging the world into a far more serious economic downturn, possibly even a depression.
0:00 /2:44Mixed signals on the recovery
"Without these speedy and forceful actions, last October's panic would likely have continued to intensify, more major financial firms would have failed, and the entire global financial system would have been at serious risk," he said.
He said the meltdown proved that there was the need for a new financial regulatory framework. But he cautioned that no matter what rules are put in place, the kind of intervention practiced by the Fed and other central banks may be necessary again at some point in the future.
"In a sufficiently severe panic, funding problems will almost certainly arise and are likely to spread in unexpected ways," he said. "Only central banks are well positioned to offset the ensuing sharp decline in liquidity and credit provision by the private sector. They must be prepared to do so."
Speaking at an annual symposium in Jackson Hole, Wy., Bernanke echoed a statement made by the Fed earlier this month, saying that "economic activity appears to be leveling out, both in the United States and abroad."
Bernanke went a step further though, indicating that "prospects for a return to growth in the near term appear good."
But the central bank chief warned that problems remain in financial markets around the globe, and that with banks facing "substantial" additional losses ahead, businesses and consumers will continue to have trouble accessing credit.
"Because of these and other factors, the economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels," he cautioned.
Bernanke spent much of the speech reviewing the economic crisis that unfolded last September in the wake of the bankruptcy of Lehman Brothers and near collapse of insurer AIG (AIG, Fortune 500).
He defended the actions of the Fed, Treasury Department and Congress, as well as major governments around the world, in their response to the crisis. He said those actions likely prevented the financial panic from plunging the world into a far more serious economic downturn, possibly even a depression.
0:00 /2:44Mixed signals on the recovery
"Without these speedy and forceful actions, last October's panic would likely have continued to intensify, more major financial firms would have failed, and the entire global financial system would have been at serious risk," he said.
He said the meltdown proved that there was the need for a new financial regulatory framework. But he cautioned that no matter what rules are put in place, the kind of intervention practiced by the Fed and other central banks may be necessary again at some point in the future.
"In a sufficiently severe panic, funding problems will almost certainly arise and are likely to spread in unexpected ways," he said. "Only central banks are well positioned to offset the ensuing sharp decline in liquidity and credit provision by the private sector. They must be prepared to do so."
Monday, August 17, 2009
Oil dips to its August low
Oil slipped to its lowest this month at below $66 a barrel on Monday as investors became more cautious about the pace of global economic recovery and any revival in energy demand.
The decline added to the market's $3.01, or 4.3% slide on Friday -- the biggest loss since July 29 -- after the Reuters/University of Michigan Survey of Consumers showed confidence in early August dropped.
"It's a very weak market, continuing the weak tone on Friday, linked to falling stock markets and more bearish sentiment about demand," said Christopher Bellew, a broker at Bache Commodities.
U.S. crude oil futures for September fell $1.31 to $66.20 a barrel. Prices earlier hit an intra-day low of $65.65, the lowest since July 31.
European shares fell, following losses in Asia. The dollar rose against a basket of currencies.
U.S. stocks were opened lower, even after a gauge of manufacturing in New York state moved into positive territory in August, suggesting growth in the sector for the first time since April 2008.
Oil's decline on Friday brought it to a weekly loss of 4.8%, snapping a four-week streak of gains that were largely fueled by optimism the global economy had turned a corner and recovery would boost energy demand.
Economy and weather: Japan's economy emerged from its longest recession in at least 60 years in the second quarter, but analysts said it would be a long road to a sustained recovery in the world's third-largest oil consumer.
Although the Atlantic hurricane season, which can disrupt Gulf of Mexico oil and gas production, has arrived, analysts said brimming crude stockpiles in the United States would limit the impact of a storm on oil prices.
With Claudette downgraded to a tropical depression over southern Alabama, the energy market on Monday started to focus on Tropical Depression Ana as it moved towards Hispaniola, Cuba and Florida.
The U.S. National Hurricane Center did not expect much from Ana. The system will likely be a mere remnant of the depression when it reaches the Florida Panhandle later this week near where Claudette struck the coast.
Hurricane Bill was expected to spare the Caribbean Islands and the Gulf of Mexico as it targets Bermuda and the U.S. East Coast, the NHC and other weather models forecast.
The decline added to the market's $3.01, or 4.3% slide on Friday -- the biggest loss since July 29 -- after the Reuters/University of Michigan Survey of Consumers showed confidence in early August dropped.
"It's a very weak market, continuing the weak tone on Friday, linked to falling stock markets and more bearish sentiment about demand," said Christopher Bellew, a broker at Bache Commodities.
U.S. crude oil futures for September fell $1.31 to $66.20 a barrel. Prices earlier hit an intra-day low of $65.65, the lowest since July 31.
European shares fell, following losses in Asia. The dollar rose against a basket of currencies.
U.S. stocks were opened lower, even after a gauge of manufacturing in New York state moved into positive territory in August, suggesting growth in the sector for the first time since April 2008.
Oil's decline on Friday brought it to a weekly loss of 4.8%, snapping a four-week streak of gains that were largely fueled by optimism the global economy had turned a corner and recovery would boost energy demand.
Economy and weather: Japan's economy emerged from its longest recession in at least 60 years in the second quarter, but analysts said it would be a long road to a sustained recovery in the world's third-largest oil consumer.
Although the Atlantic hurricane season, which can disrupt Gulf of Mexico oil and gas production, has arrived, analysts said brimming crude stockpiles in the United States would limit the impact of a storm on oil prices.
With Claudette downgraded to a tropical depression over southern Alabama, the energy market on Monday started to focus on Tropical Depression Ana as it moved towards Hispaniola, Cuba and Florida.
The U.S. National Hurricane Center did not expect much from Ana. The system will likely be a mere remnant of the depression when it reaches the Florida Panhandle later this week near where Claudette struck the coast.
Hurricane Bill was expected to spare the Caribbean Islands and the Gulf of Mexico as it targets Bermuda and the U.S. East Coast, the NHC and other weather models forecast.
Wednesday, August 12, 2009
Cracks in the SEC's crackdown
s the new cop on the U.S. securities beat armed with a pea shooter? The size of the penalties meted out by boss Mary Schapiro's team at the Securities and Exchange Commission makes it appear so.
Schapiro should be applauded for cranking up the agency's notoriously lax enforcement efforts. But letting companies off the hook so easily could undermine her new get-tough policy.
At first glance the penalties appear impressive. General Electric agreed to a $50 million settlement. Former American International Group (AIG, Fortune 500) head Hank Greenberg has to pay $15 million. And Bank of America has to pony up $33 million.
But these amounts are trivial when compared with the resources of those charged. BofA (BAC, Fortune 500) is the country's largest bank by assets. Greenberg is a billionaire. And GE, even today, remains a $150 billion company. The SEC didn't even get the defendants to admit guilt.
Perversely, the puny size of the penalties could provide an incentive for managers to stretch the rules. Take GE (GE, Fortune 500). The SEC alleged that it massaged its 2002 results so that it could continue its eight-year stretch of meeting consensus earnings estimates. The regulator says, absent GE's accounting fiddles, it would have missed by about 1.5 cents a share.
When GE missed estimates in the first quarter of 2008, its stock slid some 13%, wiping over $40 billion off its market cap. Using that percentage decline as a rough guide, GE's moves back in 2002 saved shareholders -- and managers with chunks of stock -- nearly $33 billion.
The comparison isn't entirely fair. GE missed by a greater margin in 2008, during a worsening financial crisis and a month after boss Jeff Immelt had promised to meet expectations.
But applying even a third of the 2008 percentage drop to GE's early 2003 market value -- more in line with the average decline by S&P 500 companies that miss estimates -- would mean the conglomerate still saved investors some 220 times the cost of the SEC's fine. That's easily enough to turn the temptation to tweak the rules into a no-brainer.
Of course, such calculations are not clear cut. There's the "name and shame" aspect, the legal costs and the loss of investor confidence to consider. Nonetheless, for the watchdog's crackdown to have a real deterrent effect, its bite needs to better match its bark.
Schapiro should be applauded for cranking up the agency's notoriously lax enforcement efforts. But letting companies off the hook so easily could undermine her new get-tough policy.
At first glance the penalties appear impressive. General Electric agreed to a $50 million settlement. Former American International Group (AIG, Fortune 500) head Hank Greenberg has to pay $15 million. And Bank of America has to pony up $33 million.
But these amounts are trivial when compared with the resources of those charged. BofA (BAC, Fortune 500) is the country's largest bank by assets. Greenberg is a billionaire. And GE, even today, remains a $150 billion company. The SEC didn't even get the defendants to admit guilt.
Perversely, the puny size of the penalties could provide an incentive for managers to stretch the rules. Take GE (GE, Fortune 500). The SEC alleged that it massaged its 2002 results so that it could continue its eight-year stretch of meeting consensus earnings estimates. The regulator says, absent GE's accounting fiddles, it would have missed by about 1.5 cents a share.
When GE missed estimates in the first quarter of 2008, its stock slid some 13%, wiping over $40 billion off its market cap. Using that percentage decline as a rough guide, GE's moves back in 2002 saved shareholders -- and managers with chunks of stock -- nearly $33 billion.
The comparison isn't entirely fair. GE missed by a greater margin in 2008, during a worsening financial crisis and a month after boss Jeff Immelt had promised to meet expectations.
But applying even a third of the 2008 percentage drop to GE's early 2003 market value -- more in line with the average decline by S&P 500 companies that miss estimates -- would mean the conglomerate still saved investors some 220 times the cost of the SEC's fine. That's easily enough to turn the temptation to tweak the rules into a no-brainer.
Of course, such calculations are not clear cut. There's the "name and shame" aspect, the legal costs and the loss of investor confidence to consider. Nonetheless, for the watchdog's crackdown to have a real deterrent effect, its bite needs to better match its bark.
Saturday, August 8, 2009
Dow and S&P at new '09 highs
Stocks rallied Friday, with the Dow and S&P 500 closing at the highest point in nine months, after the July jobs report showed the smallest number of job cuts in nearly a year, adding to recovery hopes.
The Dow Jones industrial average (INDU) gained 114 points, or 1.2%, according to early tallies. The S&P 500 (SPX) index rose 13 points, or 1.3%. The Nasdaq composite (COMP) added 27 points, or 1.4%.
All three indexes finished higher for the week.
Employers cut 247,000 jobs from their payrolls in July after slashing a revised 443,000 jobs in June. Economists surveyed by Briefing.com thought they would cut 325,000 jobs. It was the lowest level of losses since last August.
"It was the best reading on non-farm payrolls since before Lehman's collapse last September, which was the pivotal event that precipitated the crisis," said Jeff Kleintop, chief market strategist at LPL Financial.
The report seemed to confirm other recent indications that the economy is stabilizing.
"Leading indicators have priced in a recovery for a while, now lagging indicators like unemployment are too," he said.
Although employment is seen as a lagging indicator in any recovery, the steady march higher of the unemployment rate over recent months has added to investor anxiety about the health of the economy.
The unemployment rate, generated by a separate survey, fell to 9.4% in July from 9.5% in June, versus forecasts for a rise to 9.6%.
The stock advance was broad based, with 24 of 30 Dow components rising, led by IBM (IBM, Fortune 500), Boeing (BA, Fortune 500), United Technologies (UTX, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Chevron (CVX, Fortune 500).
Stocks slipped Thursday, the second straight decline, as investors took a step back after the recent big rally and ahead of the jobs report.
The Dow, Nasdaq and S&P 500 all hit fresh 2009 highs earlier in the week, following three weeks of gains. Since bottoming March 9 at a 12-year low, the S&P 500 has risen 49.4% as of Friday's close.
Quarterly results: AIG (AIG, Fortune 500) reported its first quarterly profit in nearly two years Friday, but the troubled insurer continues to struggle in the aftermath of its near-collapse last fall. AIG still owes taxpayers $87.6 billion.
The stock nearly doubled in the run-up to the profit report. AIG gained another 20.5% Friday.
Cash for Clunkers: President Obama on Friday signed into law an extension of the auto sales stimulus program that will keep it running through Labor Day. On Thursday night, the Senate approved $2 billion in extra funding for the popular program, which gives consumers up to $4,500 if they turn in gas guzzlers and buy more fuel-efficient models.
Oil and gold: U.S. light crude oil for September delivery fell $1.01 to settle at $70.93 a barrel on the New York Mercantile Exchange. Oil prices have been gaining in recent weeks on bets the global economy is close to turning around.
COMEX gold for December delivery fell $3.40 to settle at $959.50 an ounce.
Bonds: Treasury prices tumbled, raising the yield on the benchmark 10-year note to 3.85% from 3.74% late Thursday. Treasury prices and yields move in opposite directions.
Other markets: In global trading, European markets rallied after the release of the U.S. jobs report. Asian markets ended lower -- with the exception of the Nikkei -- losing steam ahead of the jobs report.
In currency trading, the dollar gained versus the euro and the Japanese yen.
Market breadth was positive. On the New York Stock Exchange, winners topped losers three to one on volume of 1.47 billion shares. On the Nasdaq, advancers topped decliners by over two to one on volume of 2.51 billion shares.
The Dow Jones industrial average (INDU) gained 114 points, or 1.2%, according to early tallies. The S&P 500 (SPX) index rose 13 points, or 1.3%. The Nasdaq composite (COMP) added 27 points, or 1.4%.
All three indexes finished higher for the week.
Employers cut 247,000 jobs from their payrolls in July after slashing a revised 443,000 jobs in June. Economists surveyed by Briefing.com thought they would cut 325,000 jobs. It was the lowest level of losses since last August.
"It was the best reading on non-farm payrolls since before Lehman's collapse last September, which was the pivotal event that precipitated the crisis," said Jeff Kleintop, chief market strategist at LPL Financial.
The report seemed to confirm other recent indications that the economy is stabilizing.
"Leading indicators have priced in a recovery for a while, now lagging indicators like unemployment are too," he said.
Although employment is seen as a lagging indicator in any recovery, the steady march higher of the unemployment rate over recent months has added to investor anxiety about the health of the economy.
The unemployment rate, generated by a separate survey, fell to 9.4% in July from 9.5% in June, versus forecasts for a rise to 9.6%.
The stock advance was broad based, with 24 of 30 Dow components rising, led by IBM (IBM, Fortune 500), Boeing (BA, Fortune 500), United Technologies (UTX, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Chevron (CVX, Fortune 500).
Stocks slipped Thursday, the second straight decline, as investors took a step back after the recent big rally and ahead of the jobs report.
The Dow, Nasdaq and S&P 500 all hit fresh 2009 highs earlier in the week, following three weeks of gains. Since bottoming March 9 at a 12-year low, the S&P 500 has risen 49.4% as of Friday's close.
Quarterly results: AIG (AIG, Fortune 500) reported its first quarterly profit in nearly two years Friday, but the troubled insurer continues to struggle in the aftermath of its near-collapse last fall. AIG still owes taxpayers $87.6 billion.
The stock nearly doubled in the run-up to the profit report. AIG gained another 20.5% Friday.
Cash for Clunkers: President Obama on Friday signed into law an extension of the auto sales stimulus program that will keep it running through Labor Day. On Thursday night, the Senate approved $2 billion in extra funding for the popular program, which gives consumers up to $4,500 if they turn in gas guzzlers and buy more fuel-efficient models.
Oil and gold: U.S. light crude oil for September delivery fell $1.01 to settle at $70.93 a barrel on the New York Mercantile Exchange. Oil prices have been gaining in recent weeks on bets the global economy is close to turning around.
COMEX gold for December delivery fell $3.40 to settle at $959.50 an ounce.
Bonds: Treasury prices tumbled, raising the yield on the benchmark 10-year note to 3.85% from 3.74% late Thursday. Treasury prices and yields move in opposite directions.
Other markets: In global trading, European markets rallied after the release of the U.S. jobs report. Asian markets ended lower -- with the exception of the Nikkei -- losing steam ahead of the jobs report.
In currency trading, the dollar gained versus the euro and the Japanese yen.
Market breadth was positive. On the New York Stock Exchange, winners topped losers three to one on volume of 1.47 billion shares. On the Nasdaq, advancers topped decliners by over two to one on volume of 2.51 billion shares.
Wednesday, August 5, 2009
Stocks fall on job jitters
Wall Street retreated Wednesday as investors fretted that the still struggling labor market would weigh on recovery efforts.
More than an hour into the session, the Dow Jones industrial average (INDU) lost 92 points, or 1%; the Standard & Poor's 500 (SPX) shaved 9 points or, 0.9%; and the tech-heavy Nasdaq composite (COMP) gave up 21 points, or 1.1%.
The retreat reverses Wall Street's recent run, which has been spurred by a better-than-expected second-quarter earnings period and signs of stabilization. July was the strongest July for the Dow and S&P 500 in two decades.
On Tuesday, stocks ended higher, with the Dow and S&P hitting new nine-month highs. This was supported by a stronger-than-anticipated read on the housing market: The National Association of Realtors said the pending home sales index rose 3.6% in June.
Job market: Two reports on Wednesday, however, showed that the labor market continues to face challenges and that recovery in the sector will be slow.
Paycheck processor Automatic Data Processing (ADP) said private-sector employers cut 371,000 jobs in July, the smallest monthly total since October. Although the pace of job cuts is slowing, the number was higher than expected.
Earlier this morning, outplacement firm Challenger said companies' planned job cuts rose 31% in July, indicating problems in the employment sector are far from over.
The reports come ahead of the U.S. Labor Department's closely watched monthly jobs report, which will be released on Friday.
The Labor Department is expected to show that the economy shed 328,000 jobs in July, less than the 467,000 reported for June, according to a consensus estimate of economists compiled by Briefing.com. The unemployment rate is predicted to rise to 9.6% from 9.5%.
Economy: The morning's economic data was mixed.
One report showed that the U.S. services sector contracted more than expected in July. The Institute for Supply Management's services index fell to 46.4, -- down from 47 in June -- and shy of economists' forecast of 48. Any reading under 50 indicates the sector is contracting.
Meanwhile, a report from the Commerce Department showed a surprise uptick in demand for U.S.-made manufactured goods. Factory orders increased 0.4% in June, while economists were bracing for a decline of 0.8% according to analysts' consensus on Briefing.com.
Earnings: Consumer goods firm Procter & Gamble (PG, Fortune 500) reported profits slightly higher than expected, although revenue declined as consumers moved away from its high-end product lines.
Other companies to watch include Kraft Foods (KFT, Fortune 500), which reported an 11% jump in profits after U.S. markets closed Tuesday.
Oil and gold: U.S. light crude oil for September delivery fell 98 cents to at $70.44 a barrel.
COMEX gold for December delivery fell $2.70 to $967 an ounce.
0:00 /2:41The impact of govt. assistance
Bonds: Treasury prices were nearly unchanged, with the yield on the benchmark 10-year note down slightly to 3.67%. Treasury prices and yields move in opposite directions.
Other markets: In global trading, Asian stocks fell as investors paused for breath. Major European markets were mixed as investors digested another round of bank earnings.
In currency trading, the dollar gained versus the euro and the Japanese yen.
Market breadth was negative. On the New York Stock Exchange, decliners beat out more than two to one on a volume of 324 million shares. On the Nasdaq, decliners beat out advancers almost three to one on a volume of 705 million.
More than an hour into the session, the Dow Jones industrial average (INDU) lost 92 points, or 1%; the Standard & Poor's 500 (SPX) shaved 9 points or, 0.9%; and the tech-heavy Nasdaq composite (COMP) gave up 21 points, or 1.1%.
The retreat reverses Wall Street's recent run, which has been spurred by a better-than-expected second-quarter earnings period and signs of stabilization. July was the strongest July for the Dow and S&P 500 in two decades.
On Tuesday, stocks ended higher, with the Dow and S&P hitting new nine-month highs. This was supported by a stronger-than-anticipated read on the housing market: The National Association of Realtors said the pending home sales index rose 3.6% in June.
Job market: Two reports on Wednesday, however, showed that the labor market continues to face challenges and that recovery in the sector will be slow.
Paycheck processor Automatic Data Processing (ADP) said private-sector employers cut 371,000 jobs in July, the smallest monthly total since October. Although the pace of job cuts is slowing, the number was higher than expected.
Earlier this morning, outplacement firm Challenger said companies' planned job cuts rose 31% in July, indicating problems in the employment sector are far from over.
The reports come ahead of the U.S. Labor Department's closely watched monthly jobs report, which will be released on Friday.
The Labor Department is expected to show that the economy shed 328,000 jobs in July, less than the 467,000 reported for June, according to a consensus estimate of economists compiled by Briefing.com. The unemployment rate is predicted to rise to 9.6% from 9.5%.
Economy: The morning's economic data was mixed.
One report showed that the U.S. services sector contracted more than expected in July. The Institute for Supply Management's services index fell to 46.4, -- down from 47 in June -- and shy of economists' forecast of 48. Any reading under 50 indicates the sector is contracting.
Meanwhile, a report from the Commerce Department showed a surprise uptick in demand for U.S.-made manufactured goods. Factory orders increased 0.4% in June, while economists were bracing for a decline of 0.8% according to analysts' consensus on Briefing.com.
Earnings: Consumer goods firm Procter & Gamble (PG, Fortune 500) reported profits slightly higher than expected, although revenue declined as consumers moved away from its high-end product lines.
Other companies to watch include Kraft Foods (KFT, Fortune 500), which reported an 11% jump in profits after U.S. markets closed Tuesday.
Oil and gold: U.S. light crude oil for September delivery fell 98 cents to at $70.44 a barrel.
COMEX gold for December delivery fell $2.70 to $967 an ounce.
0:00 /2:41The impact of govt. assistance
Bonds: Treasury prices were nearly unchanged, with the yield on the benchmark 10-year note down slightly to 3.67%. Treasury prices and yields move in opposite directions.
Other markets: In global trading, Asian stocks fell as investors paused for breath. Major European markets were mixed as investors digested another round of bank earnings.
In currency trading, the dollar gained versus the euro and the Japanese yen.
Market breadth was negative. On the New York Stock Exchange, decliners beat out more than two to one on a volume of 324 million shares. On the Nasdaq, decliners beat out advancers almost three to one on a volume of 705 million.
Sunday, August 2, 2009
Health reform follies: How to keep up
A lot was supposed to happen on health reform before Congress went on summer vacation. Turns out, a lot didn't. End result: The heavy lifting on health reform legislation has been pushed to the fall.
A bipartisan group of six senators from the Senate Finance Committee was supposed to unveil its health reform bill -- or at least an outline. But the group couldn't resolve some outstanding issues such as how to make sure the health insurance structures they're proposing end up being affordable.
It's also unclear whether the group will release a draft before the start of the Senate summer recess next Friday. That means the full committee, to say nothing of the full Senate, won't begin to debate the proposal until the leaves start turning a lovely autumn orange.
Meanwhile, House leaders had been promising a full floor vote on health reform before the congressional recess, which begins on Saturday. But that idea was tabled once it became clear that the last of the three committees -- the Energy and Commerce Committee -- wouldn't report the bill out of committee until the 11th hour.
That means the full House won't take up a health reform bill before fall.
So, with the finish line still far away, it's too soon to tell the final shape that health reform would take. CNN's Ed Henry put it best during his radio show: "It's like covering Jello."
Until then, here's an update on where things stand on some important questions: Will there be a public option? Who will pay for reform? When would it take effect?
What's the chance for a public option?
Those who want a public insurance plan want it fiercely, saying it's the only thing that can force private insurers to reduce costs and be more competitive. Those who oppose it are equally fierce, saying it would result in a government takeover of the heath care system.
Truth is, there's still not enough information in any of the proposals for either side to say definitively what the realities of a public option would be.
Two major bills that lawmakers will consider -- the tricommittee bill from the House and the bill put out by the Senate Health committee -- propose a public health insurance option. That public plan would compete with private insurers on a health insurance exchange -- or insurance supermarket -- that the bills also propose.
Among Democrats in the House, there is support for a public plan in theory. But progressive Democrats and fiscally conservative Democrats have different ideas as to what such a plan should look like. Republicans in the House, meanwhile, are almost universally opposed.
In the Senate, meanwhile, a public option doesn't appear to have sufficient support. So the bipartisan group on Senate Finance is expected to propose state and regional nonprofit health cooperatives to serve as a competitor to private insurers.
The cooperatives would be owned and governed by the consumers who join them. But they would receive seed money from the federal government. It's not clear whether the co-ops would hire doctors full-time to serve members or whether they would establish a network of doctors from which members could choose.
Nonprofit co-ops aren't a new idea, and some already exist today. But in order to be truly competitive in a market dominated by United Healthcare and the group of Blue Cross/BlueShield insurers, they need to attract a substantial number of people.
Sen. Kent Conrad, D-S.D., who proposed the co-op idea, has said actuaries estimate that co-ops could attract 12 million members -- potentially enough to make them competitive. But without any details on the proposal, it's impossible to independently verify that kind of estimate.
Who's going to pay for this?
That's the $1 trillion question tripping up everyone. Much of the cost would stem from subsidies to help make health coverage more affordable for low- and middle-income families, including the uninsured.
The House bill proposes to pay for reform in part by implementing various cost-saving measures in Medicare and Medicaid. It would also impose a surtax on the highest income Americans, affecting up to 1.2% of households. A surtax is a tax on top of a person's ordinary income tax.
0:00 /3:00Health care's infectious loss
The surtax has support among many although not all House Democrats. House Republicans oppose it.
The surtax is not expected to get much love in the Senate, where the Senate Finance bipartisan group is seen as the arbiter of what will fly as a pay-for and what won't.
The Senate group is expected to propose a slew of savings in Medicare and Medicaid. On the revenue side, it has been considering a tax on insurers for very expensive health plans -- those whose cost well exceeds the average cost of a policy for individuals and for families.
Opponents of the insurer tax -- including unions -- say the tax is likely to be passed on to consumers in the way of higher costs.
Another way lawmakers want to alleviate the cost of reform is through "pay or play" mandates on employers to provide coverage or pay a penalty that would help subsidize those who buy insurance. The Senate Finance Committee is not expected to propose an employer mandate but is expected to provide what have been referred to as employer incentives to provide coverage.
When would health reform take effect?
Not right away. In fact, health reform is going to be a long-term process no matter whose ideas end up dominating the day. Why? Because in essence it's a restructuring of one of the biggest and most complex parts of the economy.
The proposed health insurance exchange in the House bill, for instance, wouldn't be up and running before 2013, and many of the insurance reform measures wouldn't be fully in effect until 2018.
Plus a number of measures in all the reform proposals will take time - in some cases 5 to 10 years, in some cases longer - to achieve the promises of greater efficiencies, better care and cost savings.
A bipartisan group of six senators from the Senate Finance Committee was supposed to unveil its health reform bill -- or at least an outline. But the group couldn't resolve some outstanding issues such as how to make sure the health insurance structures they're proposing end up being affordable.
It's also unclear whether the group will release a draft before the start of the Senate summer recess next Friday. That means the full committee, to say nothing of the full Senate, won't begin to debate the proposal until the leaves start turning a lovely autumn orange.
Meanwhile, House leaders had been promising a full floor vote on health reform before the congressional recess, which begins on Saturday. But that idea was tabled once it became clear that the last of the three committees -- the Energy and Commerce Committee -- wouldn't report the bill out of committee until the 11th hour.
That means the full House won't take up a health reform bill before fall.
So, with the finish line still far away, it's too soon to tell the final shape that health reform would take. CNN's Ed Henry put it best during his radio show: "It's like covering Jello."
Until then, here's an update on where things stand on some important questions: Will there be a public option? Who will pay for reform? When would it take effect?
What's the chance for a public option?
Those who want a public insurance plan want it fiercely, saying it's the only thing that can force private insurers to reduce costs and be more competitive. Those who oppose it are equally fierce, saying it would result in a government takeover of the heath care system.
Truth is, there's still not enough information in any of the proposals for either side to say definitively what the realities of a public option would be.
Two major bills that lawmakers will consider -- the tricommittee bill from the House and the bill put out by the Senate Health committee -- propose a public health insurance option. That public plan would compete with private insurers on a health insurance exchange -- or insurance supermarket -- that the bills also propose.
Among Democrats in the House, there is support for a public plan in theory. But progressive Democrats and fiscally conservative Democrats have different ideas as to what such a plan should look like. Republicans in the House, meanwhile, are almost universally opposed.
In the Senate, meanwhile, a public option doesn't appear to have sufficient support. So the bipartisan group on Senate Finance is expected to propose state and regional nonprofit health cooperatives to serve as a competitor to private insurers.
The cooperatives would be owned and governed by the consumers who join them. But they would receive seed money from the federal government. It's not clear whether the co-ops would hire doctors full-time to serve members or whether they would establish a network of doctors from which members could choose.
Nonprofit co-ops aren't a new idea, and some already exist today. But in order to be truly competitive in a market dominated by United Healthcare and the group of Blue Cross/BlueShield insurers, they need to attract a substantial number of people.
Sen. Kent Conrad, D-S.D., who proposed the co-op idea, has said actuaries estimate that co-ops could attract 12 million members -- potentially enough to make them competitive. But without any details on the proposal, it's impossible to independently verify that kind of estimate.
Who's going to pay for this?
That's the $1 trillion question tripping up everyone. Much of the cost would stem from subsidies to help make health coverage more affordable for low- and middle-income families, including the uninsured.
The House bill proposes to pay for reform in part by implementing various cost-saving measures in Medicare and Medicaid. It would also impose a surtax on the highest income Americans, affecting up to 1.2% of households. A surtax is a tax on top of a person's ordinary income tax.
0:00 /3:00Health care's infectious loss
The surtax has support among many although not all House Democrats. House Republicans oppose it.
The surtax is not expected to get much love in the Senate, where the Senate Finance bipartisan group is seen as the arbiter of what will fly as a pay-for and what won't.
The Senate group is expected to propose a slew of savings in Medicare and Medicaid. On the revenue side, it has been considering a tax on insurers for very expensive health plans -- those whose cost well exceeds the average cost of a policy for individuals and for families.
Opponents of the insurer tax -- including unions -- say the tax is likely to be passed on to consumers in the way of higher costs.
Another way lawmakers want to alleviate the cost of reform is through "pay or play" mandates on employers to provide coverage or pay a penalty that would help subsidize those who buy insurance. The Senate Finance Committee is not expected to propose an employer mandate but is expected to provide what have been referred to as employer incentives to provide coverage.
When would health reform take effect?
Not right away. In fact, health reform is going to be a long-term process no matter whose ideas end up dominating the day. Why? Because in essence it's a restructuring of one of the biggest and most complex parts of the economy.
The proposed health insurance exchange in the House bill, for instance, wouldn't be up and running before 2013, and many of the insurance reform measures wouldn't be fully in effect until 2018.
Plus a number of measures in all the reform proposals will take time - in some cases 5 to 10 years, in some cases longer - to achieve the promises of greater efficiencies, better care and cost savings.
Subscribe to:
Posts (Atom)
