Stock Market Shrugs Off Sequestration Cuts For Now

U.S. stock market indexes rise on Friday as sequestration cuts go into force.

With the sequestration deadline come and gone, U.S. markets and major indexes advanced on Friday, shrugging off any worries about the mandatory reduction in government spending, at least for now.

The Dow Jones Industrial Average (NYSEARCA:DIA) gained 0.25% on Friday, while the S&P 500 (NYSEARCA:SPY) advanced 0.23%.

The Nasdaq 100 (NYSEARCA:QQQ) climbed 0.33% and the Russell 2000 (NYSEARCA:IWM) jumped 0.4% as investors ended a volatile week with a good day.

Major U.S. indexes also finished the week with modest gains as they try to reclaim all time highs last seen in October, 2007.

On My ETF Radar

spx030113

chart courtesy of StockCharts.com

A quick glance at the chart of the S&P 500 (NYSEARCA:SPY) demonstrates the continued sideways action of this major U.S. index as investors try to determine if sequestration cuts will be a bad thing or not.

Resistance and support levels are clearly defined and this channel has now been underway for a full month. Sooner or later the S&P 500 (NYSEARCA:SPY) will break one way or another, perhaps in response to the sequestration cuts or perhaps to some other catalyst not yet on the horizon.

Sequestration Cuts Are Here And They’re Real

On Friday, President Obama ordered the mandatory spending cuts of $85 billion which he described as a “slow grind on the economy.”

The order came after a Friday White House meeting between the President and Congressional leaders ended with no agreement for preventing the automatic cuts from taking place. The issues remain the same as the President pushes for a mix of spending cuts and tax increases while the Republican controlled House of Representatives says that tax increases won’t be a part of this package.

The amount of the cuts will be $85 billion for 2013 and $1.2 Trillion over the next ten years. Defense will take approximately a 13% hit this year while 9% will come from social and non defense programs. The cuts will echo far and wide across the Federal and state level and how long this might go on or how deep the pain might be remain unknowns.

ETF News You Can Really Use

Federal Reserve Chairman Ben Bernanke spent two days testifying before Congress and his words seemed to have a calming effect on global stock markets as he defended his quantitative easing policies and gave no indication that they would be changing or ending anytime soon.

The economic news for the week was largely positive with initial jobless claims falling more than expected and ISM and Chicago PMI reports beating expectations. Durable good orders rose and January new home sales jumped to 437,000 from the previous month’s 378,000.

Case/Shiller reported that home prices continued to climb with a 6.8% rise in December over the previous year as the housing market continues to show strength which was confirmed by pending home sales rising 4.5% in January, up from -1.9% in December.

Consumer confidence continued to climb in spite of a sharp decline in in personal income with a fall of 3.6% in January.

Read “Sequestration Fears Outweighed By Friday’s Economic Data”

In spite of the good news, a surprisingly weak Q4 GDP estimate put growth at 0.1%, up from the previous -0.1% estimate, but still perilously close to flat line numbers for the U.S. economy.

Europe had a tough week with major sell offs in Italy after its national election, and PMI reports from Europe painted a dismal picture with Spain, Italy and France all coming in below the 50 level that signifies the boundary between contraction and expansion.

Read “Downbeat Economic Reports Challenge European Stocks”

The upcoming week brings ISM Non Manufacturing numbers on Tuesday, ADP Unemployment, factory orders and Fed Beige Book on Wednesday, weekly jobless claims, household debt and unit labor costs on Thursday, and Friday rounds out a busy week with the closely watched February Non Farm Payrolls and Unemployment reports.

And, of course, much attention will be paid to the ongoing standoff over the sequestration spending cuts and how potential furloughs, spending cuts and job losses might affect the U.S. economy.

Bottom line: Major stock indexes and ETFs largely continued to ignore the potential impact of the upcoming sequestration cuts and deepening problems in Europe. How long this can go on remains to be seen, however, for the week just ended, investors appear to have decided that all is well with the world.





Posted 03-03-2013 3:24 PM by John Nyaradi