The Big Picture For The Week of July 10, 2005

I am scheduled to appear in my usual slot during the first half hour of Asian Market Watch on Monday morning (Sunday night US time).

My point of contact at the network asked for a bullet pointed list, like last time, of the various things that I think might be important for the next few days or so.

• Terrorism is back on the table. Capital markets have shown they now understand single strike, non nuclear attacks. Markets don't fear the known they fear the unknown. While it is sad that these attacks occur and it is sad that we are getting used to them it is clear that the types of attacks we have had do not threaten capital markets. I wrote many months ago that markets would bounce back faster to the trend that existed with each subsequent attack and so I did a little buying the morning of the attacks.
• The way to have a little protection against escalated terror for a diversified portfolio is by owning a defense stock or two, have exposure to gold and investing in foreign countries.
  

So back to what was moving markets before;

• Oil had a confusing close to the week but still remains quite high and poses threats to the consumer and to corporations. No one should be surprised if companies blame energy costs for missing earnings.
• US stock markets have been less volatile than historical norms but currencies, commodities and bonds have been far more interesting and volatile in the last few months or so. This might become more relevant in the coming months. Trying to look ahead, I would start to think about a commodity bull market having more legs to it and I would also start to think about the US market evolving into a slower growth market which will make certain foreign markets the place to increase exposure.
  
• Alcoa had a great earnings report for the first time in many quarters. Estimates call for the S+P 500 to grow earnings by 7%-8% this quarter, this is down significantly from the past few quarters. This still looms out there as a headwind for the market. I have said I don't think earnings will be a first priority for the market but great reports from General Electric or Intel or other big leaders could prove me wrong and lift the market nicely.
  
• I still think the Fed is the most important thing right now in terms of where they decide to stop raising rates. My last time on the show I said I thought they would figure out how to transition in such a way as to minimize shocks to the market. While there was not much disruption from the June meeting I was disappointed that we didn't learn anymore about the Fed than we knew before the June meeting.
  
• The jobs report took a back seat last week because of the UK bombings. The headline number was bad and the revisions were good. More importantly, I think next month's jobs report will be distorted by the hurricanes, hopefully the market digests this possibility before the report comes out.