Investor optimism was boosted on Friday as the month of July drew to a close, with all three major stock market indicators ending on a high note for the month. Data revealed that the economy had shrunk less than expected in the second quarter, and while bearing in mind that the percentages are being measured from a lower base, investor confidence was reflected in the Dow’s 8.6 percent increase, the rise by 7.4 percent for the Standard & Poor’s 500 and the Nasdaq composite climb of 7.8 percent for the month – making July 2009 the best the Dow has achieved in twenty years, while the S&P 500 notched up its best performance since 1997.
While earnings reported during the week were better than expected, analysts warn that investors must not lose sight of the fact that many of these surprisingly upbeat results have been as a result of staff cutbacks and cost-cutting in the way companies run their day to day business. This practice can’t continue indefinitely and companies will have to increase revenue to maintain investor confidence. However, companies that have trimmed their overheads and operating expenses will be in a position to reap the benefits when the economy turns around. Of course, this is cold comfort for workers who fell victim to the pruning shears of cost-cutting, but is nevertheless good news for investors.
Analysts agree that even if the economy is on the road to recovery, and that is considered by many to be a huge “if”, there are still many hurdles to overcome. Consumers who have been hit by job losses are battling to even buy daily necessities and many are in a similar position due to a cut in overtime, or reduced working hours. Those who still have their jobs are trying to pay off any debts they may have, to put themselves in a better position if a job loss or wage cut should affect them. Viewing a couple of episodes of two of America’s favorite talk shows brings into focus to what extent ordinary American citizens have been affected by the current economic crisis.
Up to 60 percent of stock market listed companies from all sectors have already reported their second-quarter results, and the week ahead will bring results from some of the balance, including Marathon Oil, Humana, Kraft Foods, Proctor & Gamble, AllState, Prudential, Sunoco, Comcast and DTV. Monday sees the July manufacturing index from the Institute for Supply Management and economists are anticipating a slight improvement – from 44.8 in June to 46.5 in July. The Commerce Department is due to release its June construction sales report on Monday, and its readings for June on personal income and spending on Tuesday. Also on Tuesday, investors can expect the National Association of Realtors June pending home sales index. Payroll services firm ADP will make known the July reading on private-sector job losses which is expected to have dropped to 340,000 after June’s figure of 473,000. The Institute for Supply Management (ISM) services sector report is expected to have dropped from 48.8 in June to 48 in July. The Labor Department will release the weekly jobless claims report on Thursday morning, while the nation’s retailers will disclose July sales figures throughout the day. Friday sees the release of the July jobs report from the Department of Labor, with the unemployment rate expected to have climbed from 9.5 percent in June to 9.6 percent for July.
