It could have been so much worse.
US stocks took another tumble Friday, on revisions to 1st and 2nd quarter GDP and fears that the debt ceiling debate in Washington was running out of time.
An hour prior to the opening bell, the government reported its second revision to second quarter GDP, which came in at a measly 1.3%, but the greater shock was the revision to first quarter GDP, which was revised lower, from 1.9% growth to a frighteningly-low 0.4%. That sent shock waves through the futures market and US indices fell sharply at the open, hitting the lows of the day within the first 15 minutes of trading.
Just before 10:00 am EDT, Chicago PMI was reported to have fallen to 58.8 in July, lower than forecast, from 61.1 the prior month. That wasn't bad enough news, however, to shake off the nascent rally on rumors and hope that congress would decide on a debt ceiling increase by the end of the day or over the weekend.
As the session wore on, stocks moved sharply on any unfounded rumors, but eventually gave way late in the day, as lawmakers in the House of Representatives agreed, 236-186, to begin debate on House majority leader John Boehner's debt ceiling proposal, which had been in limbo since Tuesday because the measure did not have the backing of the Tea Party wing of the Republican party and - even if it did pass the House - was seen as almost certain to fail in the Senate. An actual vote on the measure is expected to come around 6:00 pm EDT Friday.
At the end of the day and end of the week, with no resolution on the debt issue and economic data overshadowing even the best corporate second quarter reports, the Dow finished lower for the sixth straight day, the S&P down for the last five, and the NASDAQ in negative territory for the fourth day out of the last five. On Thursday, the NASDAQ registered a gain of just over one-and-a-half points.
For the week, the Dow lost 538 points, a 4% decline. The S&P slipped 53 points, the NASDAQ shed 102 points and the NYSE composite fell by 328 points.
As bad as it was, stocks actually recovered half of their earlier losses on Friday. Still, it was the worst weekly performance for US indices in a year.
Dow 12,143.24, -96.87 (0.79%)
NASDAQ 2,756.38, -9.87 (0.36%)
S&P 500 1,292.28, -8.39 (0.65%)
NYSE Composite 8,079.44, -44.59 (0.55%)
Declining issues again dominated advancers, 4113-2476, and the gap between the expanding number of new lows and shrinking new highs worsened. On the NASDAQ, there were just 26 new highs, as compared to 114 new lows. The NYSE showed even worse, with just 16 new highs and 177 new lows. The combined totals of 42 new highs against 291 new lows is sending the strongest sell signal imaginable. Even if the congress does find a way to pass a debt ceiling increase by Tuesday, August 2, the damage for wasting time has been done the Moody's and S&P will likely downgrade US debt in short order, as they both have warned would occur if serious measures were not taken at this impasse.
Add to that the non-recovery "recovery" which has been represented by high unemployment and falling home prices and the recipe for further declines in equities is writ large.
Volume on the day was strong, another sign of a weakening stock market poised on the brink of turning losses into a major correction and a resumption of the bear market.
NASDAQ Volume 2,274,169,000
NYSE Volume 5,045,403,000
Among other interesting notes were the 10-year, which rose in price, but slumped in yield, down to 2.80%. The 30-year bond also hit a fresh low yield of 4.13%.
Oil took some losses, down $1.74, to $95.70. Gold made another intra-day high of $1637.50, before settling back to close at $1,628.30, up $14.90 for the day. Silver was up 31 cents, to $40.11 per ounce.
With the markets suffering their worst weekly losses in a year - coincidentally at the same time top economists are partying at their annual convention in Jackson Hole, Wyoming, the same place that Fed Chairman announced the launch of QE2 last summer - the onus is on the congress to come with a plan that appeases not only both parties but the ratings agencies as well.
While it is doubtful they would let the August 2 date pass without a debt ceiling increase, the chances of them passing a bill before then that actually cuts spending appropriately are still quite long.