July 1, 2011: Market Update

Happy Fourth of July!

What a way to end the quarter!  Stocks surged again today to complete their best week since July 2009, buoyed by another indication of strong gains in manufacturing.  Energy, technology and consumer discretionary stocks led the week, with financials finally joining in.  There was a lot of news this week and it was mostly good for a change.

The issues in Greece are slowly moving toward a short-term resolution.  Building on the success of the confidence vote last week, the Greek parliament voted on major austerity measures thereby paving the way for the second bailout from the IMF.  This helped release some of the recent anxiety over the interconnectedness of European banks to the Greek budget crisis.  While this won’t be the last time we hear about Greece, they appear to have kicked the can down the road for at least another six to twelve months.

Company news was abundant this week too.  Here are some of the stories on stocks we either own or follow:

• Merck gives a lift to drug stocks after winning approval to sell its blockbuster cancer vaccine Gardasil in Japan. The approval opens a key sales market for the drug as it nears global saturation.
• Google is in early talks to buy video site Hulu, the L.A. Times reports – a move that would go a long way toward solving Google’s internal dilemma about how to add more professional content to its user-submitted empire on YouTube.
• Duke Energy asks for a 15% rate hike in North Carolina as it spends more on equipment and plants to meet stricter environmental regs.
• Nortel Networks is selling its massive patent portfolio for $4.5B, to a consortium of tech companies that includes Apple, Microsoft, and Research in Motion.

In economic news we unfortunately had more mixed data.  Sending the market higher today, the June ISM Manufacturing Index came in much better than analysts had expected.  Same was true for the Chicago PMI.  However, there were regional misses in both Texas and New York which point to continued weakness in certain parts of the country.  Home prices continued to fall with the Case-Shiller Home Price Index dropping another 4 percent year-over-year, the biggest drop since November 2009.  June Consumer Confidence also fell below estimates which indicate that people are still disappointed with the economy.  Who can blame them?

In politics we had two big events this week.  President Obama threw down the gauntlet at Republican lawmakers over deficit spending and raising the debt ceiling.  The rhetoric is beginning to heat up which suggests that both sides are very entrenched.  The deadline for raising the debt ceiling is officially August 2^nd, but keep in mind that Congress actually needs to both craft legislation and pass a bill before the debt ceiling increase is put into law.  In other news, we learned (through the grapevine) that Timothy Geithner appears to be ready to resign from his position as Secretary of the Treasury.  If we are to believe what we read, he is only waiting for the increase in the debt ceiling before he bails.  An early frontrunner to replace him is Sheryl Sandberg who is an insider of Silicon Valley having held positions at both Facebook and Google.

And lastly, for the story of the week we turn to Minnesota.  Did you know that the Minnesota state government actually shut down today after the Governor and legislature failed to agree on a budget deal to resolve a $5 billion deficit?  For some reason, this story did not make headline news today.  Two-thirds of state employees will be furloughed and state parks and campgrounds shut ahead of their busiest stretch of the year.  Now you know.

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