Debt crisis averted, stock market focus will turn back to economy

The U.S. stock market lately has felt a lot worse off than it really was.

That’s the backdrop as the new trading week begins, with Congress and the White House apparently in a deal to raised the federal debt ceiling ahead of Tuesday’s cash-crunch deadline for the Treasury.

July was the third straight losing month for equities, but key indexes haven’t given up a huge amount of ground despite the debt drama in Washington and a barrage of weak economic data in recent weeks.

The Standard & Poor’s 500 index (charted below) fell 3.9% last week to end Friday at 1,292.28. But it’s down a modest 5.2% since reaching a multiyear closing high of 1,363.61 on April 29.

So the decline so far doesn’t even qualify as a garden-variety “correction” in a bull market. A typical correction knocks 10% to 20% off market indexes. A drop of more than 20% would constitute a new bear market.

The market last week continued the trend in place since major indexes peaked in April: The selling has been concentrated in shares of companies that are most sensitive to the economy’s swings. That has been offset by much smaller losses in shares of companies whose businesses are less cyclical in nature.

The point being: If you have a diversified portfolio, this pullback has been a hiccup so far. That was true at the market's recent lows in June, too.

Of the 10 major industry sectors in the S&P index, industrial stocks have fallen the most since April 29, down an average of 10.6%. That group includes names such as Boeing, Deere & Co. and 3M Co.

Other sectors that have been hit hard include financials (down 9.7% on average since the April high) and basic-materials shares (i.e., commodity producers), off 6.6%.

Meanwhile, the utility sector within the S&P index is up 0.02% since April 29. Utilities are classic “defensive” stocks, meaning they tend to be a good place to hide amid market turmoil. Their above-average dividend yields also are a draw.

Another defensive sector that has held most of its ground is the so-called consumer staples group, which includes companies such as tobacco giant Altria Group, cereal maker Kellogg Co. and drugstore chain CVS Caremark. That stock sector is off just 2.2% since April 29, on average.

Stocks of smaller companies have fallen faster than blue chips over the last week, month and three months, but that’s typical when the market weakens. Yet small-stock indexes also are down less than the "correction" threshold of 10%.

The Russell 2,000 small-stock index (charted at right) slumped 5.3% last week. It’s down 7.9% from its 2011 high reached on April 29.

The S&P 400 index of mid-size company stocks lost 4.9% last week and is off 7.1% since April 29.

Assuming the federal debt mess is resolved, investors are likely to focus more intently on the economy’s prospects. So far, strength in second-quarter earnings at many companies has largely offset concerns about  faltering U.S. growth apparent in much of the economic data.

This week, Wall Street will get key reports on the economy in July, including the ISM manufacturing-sector index (due Monday), car sales (Tuesday), the ISM services-sector index (Wednesday) and the all-important employment report (Friday).

With stocks holding on to most of the hefty gains they’ve racked up over the last year, the market clearly doesn’t believe what much of America believes -- that another recession (or worse) is looming.

This week’s data may help show who’s got it right on the economy as the U.S. debt drama recedes.

-- Tom Petruno

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Stocks jumped in Asia as the new trading week began after Democrats and Republicans reached a deal to raise the U.S. debt ceiling and cut spending.

Gold fell and Treasury bond yields edged up. The dollar was mixed.

The Tokyo stock market’s Nikkei-225 index was up 180 points, or 1.8%, to 10,012 about two hours into the trading day Monday. Australia's main share index was up 1.9%, the South Korean market gained 1.7% and Hong Kong was up 1.5%.

Stocks had been pounded worldwide last week in part on fears that the U.S. might default on its debts. On Wall Street the Dow Jones industrial average fell 4.2% for the week, its worst loss in a year.

Resolving the debt crisis would remove one stumbling block for markets. Now, investors are expected to shift their focus back to the global economy, which has weakened substantially in recent months.

But for the moment, at least, investors are pulling back from some of the classic havens that attracted money as Washington’s debt drama worsened.

Gold futures fell $13 to $1,615 an ounce in electronic trading Sunday evening, after reaching a record high of $1,628.30 on Friday in New York.

The yield on the 10-year Treasury note rose to 2.83% from 2.80% on Friday.

Despite worries about possible default -- something that was never a serious risk in the eyes of many analysts -- Treasury yields had plunged on Friday after the government gave a dismally weak estimate of second-quarter economic growth.

That showed that, even as Congress’ gridlock over the debt ceiling put the world on edge, Treasuries were retaining their role as a place for capital to hide in times of economic uncertainty.

-- Tom Petruno

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The Debt Ceiling, in Pop Culture

Open Market

Enlisting readers in a hunt for answers.

During the financial crisis, the bank-run scene from “It’s A Wonderful Life” proved a useful pop-culture reference for helping people understand what was happening to the economy.

Enlisting readers in a hunt for answers.

This whole debt ceiling debacle and its potential consequences are similarly confusing, especially if you’re just tuning in now. It would be nice if there were a similar popular allusion to help people make sense of the debate. Yesterday I asked the Twitterverse for suggestions, and so far I’ve heard “Thelma and Louise,”  the end of “Planet of the Apes” and “Jackass: The Movie.“ Those aren’t exactly the kind of analogies I was looking for, but hey, they’re amusing all the same.

So readers, what do you think? Is there a film or other cultural touchstone that can help people understand the debt limit discussions and their potential consequences?

Used cars, immigration lotteries: Your weekly ScamWatch

Here is a roundup of alleged cons, frauds and schemes to watch out for.

Used cars –- Consumers should take caution to avoid fake dealerships when purchasing used cars on the Internet, the Better Business Bureau said in a news release. Some con artists are setting up websites for fake dealerships, requesting deposits and then failing to deliver the cars, the BBB said. Michelle Corey of the BBB said consumers should take caution when paying in advance for anything marketed on the Internet. She suggests consumers purchase only from well-established businesses with solid reputations. They also should use credit cards whenever possible in case they later need to challenge the purchases.

Immigration lotteries –- Immigrants living in the United States have been targets of a scam in which they receive emails that claim they have won lotteries to receive U.S. immigrant visas. The emails include an official-looking State Department letterhead and request payment of $819 through Western Union to a company in London, said Paul Young Choi, an immigration lawyer in Encino. Immigrants who receive such emails should ignore them, Choi said. He notes that U.S. government agencies do not send invoices by email requesting payment to third parties in foreign countries.

Online “Yellow Pages” –- A European-based operation has bilked U.S. small businesses, churches and nonprofit organizations out of millions of dollars through phony bills for online advertising, the Federal Trade Commission has alleged. The operation, based in Spain, England and the Netherlands, sends invoices to U.S. offices for online advertising they did not want and then refuses to issue refunds to companies that discover they’ve been duped, the FTC alleged in a lawsuit against several companies, including Yellow Page Marketing Yellow Publishing and Yellow Data Services.

-- Stuart Pfeifer