A Month in Review: JulySubmitted by Guidant Planning on August 11th, 2011
By Allen G. Yee
July 9th, 2011 marked the beginning of the 29th moth of the current stock bull market. The start of this bull run began when the S&P 500 bottomed at 677 on 3/09/09. The S&P 500 was down 1.7% in June 2011 on a total return basis, giving the stock index back-to-back losing months after 8 consecutive “up” months (September 2010 through April 2011). The last time the S&P 500 was down 3 consecutive months was September-October-November 2008.
Uncertainty about default, debt, and political infighting affected equity markets both here and abroad. Despite a strong initial week that gave the S&P 500 its biggest percentage gain since mid-2009, all four domestic indices ended the month down. The small caps of the Russell 2000 were hit the hardest, while the Global Dow also suffered. Global anxiety paradoxically proved to benefit long-term U.S. Treasuries, though short-term debt suffered in the month’s final week as August 2nd and the potential for default loomed. The dollar resumed a decline that had been interrupted by eurozone uncertainty. The weaker greenback helped nudge oil prices up around $100 a barrel once again. It also sent gold to a string of new records, ending above $1,600 an ounce.
Despite warnings that the United States’ AAA credit rating was in danger of a downgrade, Washington spent much of July in hand-to-hand combat. Debate over an increase in the debt ceiling morphed into a battle over how to begin tackling the deficit. As tax increases were taken off the table, the main issues became whether to revisit the issue in six months or try to get through all of 2012. There were also the questions of when, where, and how deeply to cut spending; and whether to link any increase to a balanced budget amendment, the findings of a new congressional committee, or various deficit proposals. Though no legislation had been signed or even passed by both houses of Congress, leaders announced that with hours to go before month’s end, they had reached an agreement to submit to their respective members
Anxieties about sovereign debt overseas eased a bit after European leaders agreed to a second bailout for Greece. The hope is that the new aid package will keep the contagion from spreading to other countries such as Portugal, Ireland, Italy, and Spain, which have suffered from soaring interest rates caused by rating downgrades. According to the agreement, bondholders will exchange their Greek bonds for ones with later maturity dates and possibly lower interest rates–a move that credit agencies have suggested in the past might be considered a “selective default.”
U.S. economic growth during the second quarter was a scant 1.3%, according to the initial estimate from the Bureau of Economic Analysis. Even more discouraging was the downward revision to the estimate for Q1. It put the figure at 0.4%–essentially flat, and substantially lower than the earlier 1.9% figure.
Social Security tax receipts are projected to drop by $73 billion in 2011 compared to 2010, largely due to the 2% reduction (from 6.2% to 4.2%) of the employee Social Security payroll tax rate that was effective on 1/01/11 (source: Social Security).
If every US taxpayer that filed a tax return but ultimately did not pay any federal income tax (FIT) would have paid $100 in FIT for tax year 2008 (i.e., the most recent year that tax data is available), an additional $5.2 billion of FIT would have been collected by the Internal Revenue Service (IRS). 52 million taxpayers were able to pay zero FIT through the legal use of exemptions, deductions and credits (source: IRS).
153.4 million Americans are in the civilian labor force (i.e., either currently working or seeking work). 158.3 million Americans are either too young to work or are retired. (source: Department of Labor)
To spend $14.3 trillion (i.e., our current debt ceiling level), you would have to spend $1 million a minute for the next 27 years, 2 ½ months, i.e., until 10/01/2038 (source: BTN Research).
The US government’s annual budget deficit has increased more than 10 times in just the last 4 fiscal years. Our actual budget deficit was $161 billion in fiscal year 2007. Our projected budget deficit for fiscal year 2011 is $1.645 trillion. (source: White House)
The US government estimates that it will spend $430.4 billion on interest paid on our Treasury debt in fiscal year 2011, equal to $1 out of every $9 we are expected to spend. (source: Treasury Department)
New weekly applications (aka first-time applications) for unemployment benefits by out-of-work Americans have been 289,000 or higher every week for the last 5 years (i.e., 7/06 to 7/11). The weekly total was 418,000 for the week ending 7/02/11 (source: Department of Labor).
2.95 million Americans filed for bankruptcy protection (either Chapter 7, 11 or 13) during the last 2 calendar years of 2009-10 (source: American Bankruptcy Institute).