Stock Market and Economy Hang By A Thread: ETF Bulletin (DIA, SPY, QQQ, IWM)

Market Summary:
The stock market and economy are hanging by a thread as the deficit debate winds down, finally, to a conclusion.

However, the deficit ceiling debate is rapidly becoming a side show as economic reports continue to be unbelievably dismal.

At Wall Street Sector Selector, we remain in the defensive mode, expecting lower prices ahead.

Regarding the compromise between the White House and Congress, the only adjective that really comes to mind is “embarrassing.” They were looking for $4 Trillion in the “grand bargain” and came up with $1Trillion (maybe) and another committee. This is just what we need, another committee that is supposed to come up with more spending reductions by Thanksgiving

So once again this became an exercise in “kicking the can down the road” and now the only question is how the ratings agencies will react and if the U.S. will keep its AAA rating. As we discussed, the loss of that rating will have some serious repercussions.

The worst result of a downgrade would be a potential rout in the Treasury market as many pension funds, institutions and mutual funds are required to hold AAA securities and so would be forced to liquidate if suddenly these securities became “AA.”

But the really big and scary news was today’s ISM report on top of Friday’s dismal GDP report.

July ISM came in at 50.9, down from 53.3 in June and just a hair above the all important 50 level which is the demarcation line between growth and contraction. That is truly a pathetic number and bodes ill most likely for Friday’s all important Non Farm Payroll report.

Beyond that, with 1st Quarter GDP at a scant 0.4% and some obvious slowing since then, we are clearly close to, if not in, a double dip recession. (Some would argue that the first “Great Recession” never ended.)

On the technical front it was a wild day of volatility with the S&P closing just above the all important 200 Day Moving Average, thanks to a late day rally. All eyes are on the 200 Day and a convincing break below 1285 would be a very bearish development.

So on both a fundamental and technical level, one can clearly see how the stock market and economy are “hanging by a thread.”

Global Market Summary:

Dow Jones Industrials (DIA): -11; -0.09%

S&P 500 (SPY): -5.3; -0.4%

NASDAQ (QQQ) -11.8; -0.4%

Russell 2000 (IWM): -4.2; -0.5%

Tomorrow’s Action:

Economic Reports:

Tomorrow brings the July Motor Vehicle Sales and June Personal Income reports. But the big news starts Wednesday with the ADP Employment Report, non-manufacturing ISM and factory orders reports.

It just doesn’t get more exciting than this.

Have a great evening,

John

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Disclaimer: Wall Street Sector Selector actively trades a wide range of exchange traded funds (ETFs) and positions can change at any time.

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