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Following a week of extreme volatility, trading calmed down Friday. The U.S. major averages ended the week with two positive sessions, the first back-to-back gains since the recent correction began. That helped minimize the weekly decline following Monday's plunge and Wednesday's extension lower.
The S&P 500 lost 1.7% on the week, with nine of the 10 sectors declining. Financials (-5.0%) saw by far the largest decline after Bank of America (BAC) led U.S. banks lower on worries regarding its Countrywide segment and potential capital issues and European financials sold off aggressively on concerns regarding the banking systems in a number of countries, particularly France. Materials eked out a gain of 0.2%.
The market's focus to begin the week was domestic after Standard & Poor's became the first agency to downgrade the sovereign credit rating of the United States. The downgrade over the weekend from AAA to AA+ on political risks and the country's rising debt burden caused U.S. equity markets to nosedive Monday. The S&P 500 lost 6.7%.
The FOMC responded on Tuesday when it attached a time frame to its federal funds target for the first time, calling for exceptionally low levels at least through mid-2013.
Treasury yields did not spike following the S&P downgrade, and then surged to record lows on Tuesday (10-year 2.03%) after the FOMC made monetary policy more accommodative for a longer-than-expected period.
Treasury auctions were also in focus this week, with mixed results. Following fairly solid support for the 3-year sale on Tuesday, the 10-year auction experienced strong demand on Wednesday, only to have the 30-year sale see exceptionally low demand on Thursday.
Those results did not impact equity trading, though, as the U.S. major averages extended their recent declines Wednesday on the European banking concerns, only to regain that sharp sell-off on Thursday.
The economic calendar was thin this week, but contained some notable results.
Initial jobless claims hung around 400,000 for a third straight week, suggesting nonfarm payrolls could exceed 100,000 again in August, while retail sales was a second positive report for July.
Somewhat offsetting that data was Michigan sentiment. The first economic data point for August plunged to 54.9, the lowest level since April 1980, though it is not surprising when one considers the survey was conducted during the debt ceiling fiasco.
With fears of a slowing U.S. economy rising, next week's economic calendar takes on added importance. It includes housing starts and industrial production on Tuesday, PPI on Wednesday and CPI, jobless claims and existing home sales on Thursday. Developments out of Europe will also be in focus.
Finally, even though second quarter earnings season has drawn to a close, a number of notable retailers report next week, including Lowe's (LOW), Home Depot (HD), Wal-Mart (WMT), Dell (DELL), Target (TGT) and HP (HPQ).
| Index | Started Week | Ended Week | Change | % Change | YTD % |
| DJIA | 11444.61 | 11269.02 | -175.59 | -1.5 | -2.7 |
| Nasdaq | 2532.41 | 2507.98 | -24.43 | -1.0 | -5.5 |
| S&P 500 | 1199.38 | 1178.81 | -20.57 | -1.7 | -6.3 |
| Russell 2000 | 714.63 | 697.50 | -17.13 | -2.4 | -11.0 |
