Stocks declined sharply last week.  Global issues were partly to blame with Argentina’s debt default, increasing sanctions on Russia, and Israel’s incursion into Gaza.  I believe that none of these things will derail the US economy.  Europe will be much more affected by the sanctions on Russia.  And while sovereign debt issues have subsided substantially in Italy, Ireland and Spain, there is concern about Portugal in the wake of the Espirto Sancto Bank failure and now Argentina.  Earnings which had been coming in solidly stronger this quarter were mixed this week with several large companies lowering their forecasts.  There was a lot economic data released this week with mostly good numbers.  Yet Wall Street’s perverse logic right now seems to be that good news is bad news because it could lead to higher interest rates.   And while better economic growth will eventually lead to higher rates I don’t believe that is imminent, nor do I believe that a normalization of interest rates will stop economic growth or the bull market.  Never the less, we are nearly three years since a correction in excess of 10%, and the US markets average one per year.  Stocks have been modestly overpriced so some correction is expected.  However, we have been in a sideways market since the beginning of the year and we may be in a sideways correction and never see a pullback of 10%.  With Advance & Protect we sold the Fidelity Industrial ETF on Monday.  We will continue to monitor the situation and adjust accordingly.

The Federal Reserve in its meeting minutes Wednesday noted improving economic growth but still said there was significant slack in the labor markets.  There was no change in economic policy and the FED agreed to cut bond purchases to $25BN in August with the program ending in October.  The FED also noted that the risk of inflation persistently running below 2.0% has diminished somewhat.  Overall, I think the FED minutes were fairly dovish.  There was  vocal dissent by one FED member who thought the FED should raise short term rates sooner rather than later.  Economic News included:

• An index of pending home sales fell 1.1%, after an increase of 0.5% was forecast.  Although the reading of 102.7 is still considered strong.
• Home prices in 20 major cities grew 9.3% in May from the previous year less than the 10.8% in April.
• The Commerce Department reported that its initial reading of Gross Domestic Product rose a seasonally adjusted 4.0% in the second quarter well above the 3.0% forecast.  The first quarter decline was revised from -2.9% to -2.1%.
• US first time claims for unemployment rose 23,000 to 302,000 in the prior week, slightly better than forecasts.  Claims for the previous week revised down to 279,000.  The four week moving average also was down to 297,500.
• Employer’s labor costs rose at their fastest pace in six years in the second quarter at a seasonally adjusted 0.7% for the quarter, more than forecast.  Wages and salaries rose 0.6% from a year ago the employment cost index rose 2.0%.
• The labor department reported that the US gained 209,000 jobs in June, less than May but still robust.  This is the first time of six consecutive months above 200,000 since 1997.  The unemployment rate ticked up to 6.2% as more people entered the workforce.
• China’s purchasing managers index rose from 51.0 in June to 51.7 in July beating expectations.
• US Consumer Spending rose moderately in in June by a seasonally adjusted 0.4% as did personal income.  Both were in line with expectations.
• The price index for personal consumption expenditures rose 0.2 in June.  Excluding volatile food and energy prices rose only 0.1%.  Year over year the index was up only 1.6%.  This is important as this is the measure of inflation the FED uses and it is still below the Fed’s target of 2.0%.
• US auto sales rose sharply in July with major companies posting gains.