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Investing Specialists

Current Soft Patch Should Firm Up

Most of the issues that held the economy back this spring saw some improvement in June and even more in July.

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Investors this week focused on the potential resolution of both the United States and European debt crises. Markets sank early in the week when chances of reaching agreements seemed bleak and rose most of the rest of the week as optimism about potential deals rose and the Greek debt situation was potentially resolved (for now). However, after the closing bell Friday, renewed concerns arose over domestic debt ceiling negotiations after talks about a comprehensive plan faltered

Positive earnings news, especially from  IBM (IBM),  McDonald's (MCD), and  Apple (AAPL) also left the market feeling positive. But not all the earnings news was rosy;  Caterpillar (CAT) reporting a meaningful disappointment along with some other major industrials including  Terex (TEX) and  Ingersoll Rand (IR). One obvious trend in the earnings reports so far is that a weak dollar is helping volumes, and money collected in overseas markets is translating back into more U.S. dollars. A cheaper dollar added as much as 5%-10% to the revenues of many multinational companies based in the U.S. Despite a still-soft U.S. economy, stronger international demand and a weaker dollar are enabling many companies to report better-than-expected earnings. Mixed housing data and weaker overseas manufacturing data went largely ignored by Wall Street.

The China construction boom seemed to be losing steam this week, as both Terex and Caterpillar reported softening orders from China.

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.