World Week Ahead: Until debt do us part

By Timothy Moore

July 18 (BusinessDesk) - The fact that there isn’t yet an agreement to avert a potential default by the U.S. is par for the course.

The antipathy held by both Republicans and Democrats for each other continues to deepen. Both sides are responsible. Both sides have chosen this path as a means to an end. And neither side is willing to compromise.

That doesn’t mean that a deal won’t be reached. Eternal optimists remain hopeful that by some miracle a spending- and some sort of tax-package will take form and trillions of dollars will be ‘saved’.

Until then though, investors have little to no choice but to plan for the worse. Moody’s Investors Service and Standard & Poor’s have made clear where they stand. And there’s legitimate fear for global growth if the U.S. hits the debt ceiling and misses payments.

“For a portfolio manager - let alone an average investor - this is a treacherous market to be trying to position yourself in,” Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont, told Reuters.

Last week the Nasdaq Composite dropped 2.5%, the Standard & Poor’s 500 shed 2.1% and the Dow Jones Industrial Average fell 1.4%. And that was with some generally positive earnings momentum.

According to Thomson Reuters data, 39 companies in the benchmark S&P 500 index have posted results, with 74% reporting earnings that topped Wall Street estimates. Google Inc. offered the best news so far after Wall Street closed on Thursday and its stock surged 13% on Friday.

This coming week more top companies will post results: Goldman Sachs, Morgan Stanley, Bank of America Corp, American Express, Apple Inc., Microsoft Corp. and Intel Corp.

It may take more than solid earnings to encourage investors back into the market given the U.S. debt impasse, still lingering concerns about the European debt crisis and the disparity in levels of economic growth around the world.

“Investors feel anxious, and when investors feel anxious they either sell or sit out,” Michael Yoshikami, chief executive officer and founder of YCMNet Advisors, told Bloomberg.

European leaders will meet on Thursday to discuss the sovereign debt situation and in particular how to proceed with helping Greece.

The uncertainty about the euro zone’s next move is hampering consumer and business confidence. It is leading to downward revisions in economic growth in the U.K. and the passage of tough budget measures in Italy last week would hardly rate as a stimulus.

As hard as it is to find something positive about what’s happening in Europe, investors will be increasingly focused this week on developments in the U.S. It’s hard not to be with the level of rhetoric rising each day.

In an interview on CNN on Sunday, former U.S. Treasury Secretary Larry Summers said he worried about “runs on banks, runs on money market funds” as well as the prospect of collapse and of financial institutions being swept away.

Will the end result of the political wrangling be chaos? If so, volatility - still holding relatively steady - is going to spike and equities are going to plunge and the new normal will be rapidly redefined.

(BusinessDesk)

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