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(Scott Olson/2010 Getty Images)
(Scott Olson/2010 Getty Images)

At the Bell

Markets taking a turn for the worse? Add to ...

Today's U.S. market holiday comes just in time to give markets a breather after a string of disappointing economic reports have given pessimists plenty of reasons to sell.

The week that just concluded saw negative or below-expectations numbers from a variety of U.S. sectors, from a sharp drop in home sales, an unexpected increase in jobless claims, and slowing manufacturing activity. Disappointing payroll data capped the week.

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For better or worse, the U.S. economic calendar is light for the Independence Day week: Investors will have less news to spook them but fewer potential bright spots to prompt enthusiasm. One of the key indicators will be the Institute for Supply Management's non-manufacturing report Tuesday. While expectations are that it will read roughly 55, solidly in expansionary territory, the analysts at Boulder, Colo.-based Action Economic note "nearly all the data for the past month have come in below expectations, and that's the risk here as well." Another weekly initial jobless claims report on Thursday also has the potential to disappoint.

Similarly, we're still a week shy of second-quarter earnings season, with only a handful of minor players reporting this week. The bellwether stocks kick off the earnings period July 12 with Alcoa Inc. reporting.



If the economic recovery is for real, then why are markets acting like the party is over? Alistair Bentley, Toronto-Dominion Bank


With so little news this week, investors may continue to wallow in the pessimism of the week that just was, with the major U.S. indexes producing a five-day losing streak that left the S&P 500 down 8 per cent for the year and 16 per cent off its 2010 high. Talk of a double-dip recession, and its impact on markets, continues to creep into conversation.

"If the economic recovery is for real, then why are markets acting like the party is over?" Toronto-Dominion Bank analyst Alistair Bentley asked Friday.

CIBC economist Avery Shenfeld says the global economy is at an "inflection point," and wonders whether "we [are]seeing a turn for the worse - a period of slower, or slow growth - or a turn for the worst, towards renewed recession?" While Mr. Shenfeld reiterates "our own long-held view … that the global economy will see much slower growth ahead," he acknowledges "a turn to a slowdown looks much like a turn towards outright recession in its early stages."



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At Bank of Montreal, the economics team cut its North American growth outlook for 2010-11 for the first time in more than a year. "However, while the economy has downshifted notably in the past two months, this is still a far cry from the much ballyhooed double dip," says economist Douglas Porter.

Recent Canadian data, including last Wednesday's GDP report, has suggested a slowdown at the least. And this week's S&P/TSX performance succeeded in giving back all of 2010's gains. The coming week brings data on home prices and building permits that will likely indicate a cooling of the country's real estate market.

Similarly, while Friday's payrolls report is expected to be positive, with a consensus of a 15,000 job gain, the number will likely represent smaller employment growth than in past months. "That's the stuff that slowdowns are made of," says Mr. Shenfeld.

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