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U.S. Markets Weekly – July 5 – July 8, 2011
[private][private]MARKET DATA ND THE OUTLOOK
On a short term basis, the June Employment Report is a decided negative for US equity markets, a positive for fixed income markets, and a negative for the US dollar against most major currencies. This was a negative report negative in all virtually all dimensions – jobs count, hours, wages, labor-force participation – with nothing to excuse the way. Seasonal factors could have been an issue for June, but only a minimal one. The lack of response to massive monetary and fiscal stimulus is a striking message. Clearly, the economy has slowed significantly in the first half of this year and labor market momentum has vanished from the +200K gains sees earlier. However, despite these dismal numbers DE continues to look for a rebound in real GDP growth for the second half of the year. But when it comes, growth will be modest at best and it is important to keep expectations in line with reality. DE sees growth rebounding to just 2.5-3%, far below vigorous. The Fed meanwhile, will be kept on the sidelines by firming rates of inflation – both overall and core. This means low odds of QE3, but increases the expected length of time that the Fed will keep its balance sheet elevated. Despite all this, earnings growth projections remain robust and a continuation in the economic expansion should support the equity bull market rally.