Blog Posts by Jennifer Carinci

A shift in sentiment over Europe's debt crisis sparked risk appetite across the globe today. Skeptics can call it just a hope rally, but looking at the numbers, there's no denying that price action hinged on optimism as global markets rose sharply today.

In Asia, Hong Kong's Hang Seng closed higher by 4.15%, the Shanghai Composite rose nearly 1%, and Japan's Nikkei 225 rose 2.82%.

European markets saw sharper gains with France's CAC 40 and Germany's DAX soaring over 5%. And Britian's FTSE 100, Italy's FTSE MIB, and Spain's IBEX 35 all closed higher by more than 4%.

Nearly all asset classes rose in the US and stocks soared through much of the day, until the major indexes dipped off their highs in the final 30 minutes of trading. The Dow Jones Industrial Average rose 1.33% to 11,191, the S&P 500 rose 1.07% to 1,175, and the Nasdaq rose 1.20% to 2,547. Gold snapped a four-day losing streak, rising 3.6% to $1,652.50 an ounce; silver rose 5.2% to $31.54 an ounce, and copper rose 4.8% to $3.44 a pound. Crude oil climbed 5.3% to $84.45 a barrel. Treasury prices fell for a third day, with yields on the US 10-year at 1.98% and yields on 30-year bonds at 3.08%.

"Investors need to look at the general market as a big wall of worry today…and the market will climb that worry," says Rob Lutts of Cabot Money Management. At the heart of the worry is debt and growing deficits, and a global economy on shaky ground.

The "Risk On" trade is back today sending stocks and commodities sharply higher, and the US 10-year Treasury yield back up towards 2%. Meanwhile, as of Monday's close the S&P 500 dividend yield remained higher than the 10-year T-note, a move seen only 20 times in the past 58 years on a quarterly basis according to S&P research. The phenomenon rewrites the rulebook for yield-seeking investors, as the broader stock market offers more than a traditional bond investment.

"We're looking at that (the S&P 500 dividend yield) saying 'where do you want to put your money? Where is a safe place to put your money?' Right now it doesn't seem like there's any safe place, but it's where are you going to get the most bang for your buck?'" says Andre Julian, chief financial officer at OpVest.

For this market strategist the answer is clear and it goes back to a simple mantra repeated over and over this year: Don't fight the Fed. "The Fed has been trying to force us into the stock market….You're not going to get anything from treasuries, and the Fed doesn't want you to get anything from treasuries so that you put your money into the stock market," Julian explains.

A glimmer of hope emerges today after world leaders gathered in Washington, D.C. over the weekend for an annual IMF policy meeting that was dominated by talks of stemming the European debt crisis. Leaders have vowed to do whatever necessary to "maintain financial stability, restore confidence, and support growth," according to the communiqué from European officials. The commitment to find a way forward exists, but the means of getting there are still largely under debate.

Much of the focus right now is how to use and whether to expand the Eurozone's rescue fund —the European Financial Stability Facility or EFSF. But all 17 Eurozone nations would have to approve an expansion; a challenge within itself.

"Psychologically, I'm not sure a lot of Americans realize what such a big difference in personalities all these countries have," says British-born, but US-based hedge fund manager Simon Baker of Baker Avenue Asset management. He points to a trifecta of hurdles before more funds could be pumped into the EFSF: the psychology of the people, the troika (officials from the European Commission, European Central Bank, & IMF), and local politicians throughout the various countries.

What seems to be gaining most steam as a reported by The London Telegraph, is a deal costing up to 2-Trillion Euros that would set up a firewall around Greece, Ireland, and Portugal to prevent contagion to larger nations —namely Italy and Spain- by shoring up the most at-risk European banks, if and when Greece does default.

After an unprecedented 10-year run we may have found something to derail the stock of Apple (AAPL): inclusion in the Dow Jones Industrial Average. Rumors are resurfacing that America's largest and most valuable company --with a roughly $420 share price and $385 Billion market cap-- could become a new Dow Jones Industrial Average component.

Only 30 companies comprise the DJIA; all manufacturers of industrials and/or consumer goods. The DJIA's mission is "to provide a clear, straightforward view of the stock market and, by extension, the U.S. economy." To market pros the limitations of a 30-stock index make the Dow something of an afterthought as they focus on the S&P 500 instead. Regardless, the Dow is the big daddy index to the vast majority of investors meaning it matters, regardless of what traders think.

"When you look at the Dow 30 companies, these are brand names out there, Americans use these products. You think of McDonald's (MCD), Coca-Cola (KO), Exxon (XOM); these are

Stocks are fighting to shrug off more weak economic data released earlier today. The S&P/Case-Shiller home price index for June ticked lower by 0.1% month-over-month. On a year-over-year basis the index is down 4.5%, with all 20 cities showing decline in home values. And consumer confidence plunged more than expected to 44.5 in August versus 59.2 in July.

Now once again Wall Street's attention turns to the Federal Reserve, awaiting minutes from the FOMC meeting on August 9^th due at 2pm et. The latest meeting was significant --unlike the over-anticipated Jackson Hole speech-- because it marked a major change in language that placed an actual timeframe on how long interest rates will remain near zero. The Fed replaced the "extended period" tag it used in the prior 16 statements, and instead said it will "warrant exceptionally low levels for the federal funds rate at least through mid-2013."

What's more telling is that this decision stirred up the most dissent among voting policy makers since 1992. Three of the twelve voting FOMC members dissented: Minneapolis Fed President Narayana Kockerlakota, Philadelphia Fed President Charles Plosser, and Dallas Fed President Richard Fisher.

The market now awaits clarity on what a divided Fed means moving forward. Some hints will be derived from the August minutes, like how hard will Bernanke need to work if he decides he needs to implement additional stimulus, or QE3? And what's in store for the next policy meeting on September 20th and 21st?

"If anything, what could be on the table for September 21^st is what we in the markets refer to as 'Operation Twist' where they would lengthen the maturity of their portfolio," says James Bianco, President of Bianco Research. Specifically, Bianco explains the Fed would sell the short end of the Treasuries they hold --the 2 and 3-year notes-- and buy 10-year and 30-year notes.

Whether you lost power, got flooded, both or neither, it's safe to say millions of Americans are suffering from hurricane fatigue today. The media coverage was as massive and widespread as the storm, but nonetheless, it's always best to be safe than sorry.

Hurricane Irene may have been overhyped, but the fact remains that 26 lives were lost, and the Eastern seaboard is in major cleanup mode. The storm churned through ten states, traveling over 1,000 miles up the U.S. coastline. While Irene was downgraded to Category 1 storm when it made landfall in North Carolina on Saturday, its slow moving speed, high winds, and heavy rainfall caused power outages, flooded homes and businesses, and created a travel nightmare for Monday's business commute. It was by no means as strong and damaging as expected, but Irene could still make a historic mark in terms of dollar signs.

According to Jeanne Salvatore of the Insurance Information Institute (or I.I.I.), Hurricane Irene could be one of the

President Obama and House Speaker John Boehner delivered rival debt ceiling/deficit plans to the nation on Monday evening in back-to-back speeches explaining the current state of the debt debate and its impact on Americans. And though they may not have intended it this way, the message of unwillingness to compromise in Washington sounded out loud and clear.

Without a resolution, the President explained the consequences as follows:

"For the first time in history, our country's AAA credit rating would be downgraded, leaving investors around the world to wonder whether the United States is still a good bet. Interest rates would skyrocket on credit cards, on mortgages, and on car loans, which amounts to a huge tax hike on the American people. We would risk sparking a deep economic crisis. This one caused almost entirely by Washington."

So the world financial markets are left to watch and wait, seemingly held hostage by the resistance to compromise on Capitol Hill. Our country is one week away from hitting the $14.3 Trillion debt ceiling, which could in turn cause foreign investors to decide that maybe, just maybe the U.S. is no longer a safe haven investment.

"We're at an inflection point. Investors need to brace for interest rate risk over the next 7 — 10 years," says Keith Wirtz, President and Chief Investment Officer at Fifth Third Asset Management.

Financial markets have ignored the U.S. debt debate for long enough, and today we're seeing the first signs that failure to reach a deal on Capitol Hill will not be well-received.

Wall Street is watching as debt talks hit the skids again over the weekend. To be clear, there are two debates that the street needs resolution on: Raising the $14.3 Trillion debt ceiling by August 2nd, and agreeing on a package of spending cuts. Both conversations between Democrats and Republicans now seem as far from compromise as ever.

Government spending cuts must be deep enough to slow our skyrocketing debt-to-GDP ratio to avoid a downgrade of our nation's AAA credit rating according to Dan Clifton, Head of Policy Research at Strategas. America is in a fight to stave off default and a credit downgrade.

"Just a few years ago we had a 30% debt-to-GDP ratio that's going to be 70% this year, and it's quickly moving up to that danger range of 85 — 90%. So S&P has been very much warning that not only do you have to raise the debt ceiling to insure that interest payments are made, but you also have to start getting your fiscal situation under control with a package of about $4 Trillion (in cuts). And so there's two types of downgrades sitting on the horizon," warns Clifton. (Note: Greece's debt-to-GDP ratio is 143%!)

As Jeff Macke points out, the ratings agencies - Moody's and Standard & Poors - are finally getting it right by warning that BOTH raising the debt ceiling and cuts must take place (and he's certainly not one to praise our debt raters as we learned earlier this month on Breakout)!