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U.S. Economy

History Gives a Reason to Be Hopeful about U.S. Stocks

Volatility has hamstrung U.S. stocks recently, but history suggests there's a reason for hope on the horizon.

The past week and a half has been a welcome reprieve from the extreme volatility we've seen over the past few months. There have been no fewer than 19 days this year in which up or down volume has accounted for more than 90% of total volume.

The rapid up-and-down, all-or-nothing nature of the stock market has confounded even the most talented, highly paid and well informed traders. The hedge fund industry as a whole has been caught flat-footed – posting losses in each of the last two months.

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World's Largest Steelmaker Warns of Slowing Economic Recovery

Lakshmi Mittal, the chairman of ArcelorMittal (NYSE ADR: MT), the world's largest steel company, yesterday (Wednesday) issued a warning about the slowing pace of the global economic recovery and lowered his company's third-quarter forecast.

ArcelorMittal posted a 146% rise in net profits in the second quarter compared with the same period last year as demand recovered. However, the company warned third quarter results would slump by as much as 30% – hit by a seasonal dip in demand during the European summer, slower growth in China, and higher costs for iron ore.

"The improved performance in the second quarter is in line with our expectations and reflects the continued slow and progressive recovery," Mittal told The Wall Street Journal. "The challenge for the second half of the year will be to pass on the full extent of cost increases to our customers."

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GM Hopes to Lead Budding U.S. Electric Car Market with Chevrolet Volt

General Motors Corp. on Tuesday announced the price tag on its hybrid Chevrolet Volt due out this fall, hoping to blaze the trail for an up-and-coming U.S. electric car industry and entice buyers to take a greener route.

The extended-range electric Volt, running on battery power and a small engine, will be priced at $41,000 and will qualify for a $7,500 tax credit. The price is close to analysts' $40,000 estimate, but significantly higher than the $32,780 cost of its competitor, the Nissan Leaf.

GM justifies the price difference with the Volt's significantly better driving-range benefit: The Volt will run for 40 miles on battery power and then a small gasoline engine will kick in as a generator, powering the vehicle for another 300 – 400 miles.

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Battle Over Expiring Bush Tax Cuts Likely to Shape Fall Elections

A colossal battle is shaping up in Congress over what to do about the Bush-era tax cuts that are set to expire at the end of this year. It's an issue that entails sufficient economic and political consequences that could shape the fall elections and fiscal policy for years to come.

The expiring tax breaks received little public attention this year as Congress tussled with heavyweight issues like healthcare reform and financial regulation. But the fate of the tax cuts will be a major focus of debate in September when lawmakers return to Washington from their summer recess and the midterm campaign gets rolling.

"It has enormous ramifications for the fall and clearly will be one of the dominant issues," Sen. Ron Wyden, D-OR, told The New York Times. "This is code for the role of the federal government, the debate over the size of government and the priorities of the nation."

Democratic party leaders, including President Barack Obama, have said they want to extend the tax cuts for individuals earning less than $200,000 and families earning less than $250,000, while letting the cuts expire as scheduled for those exceeding those thresholds.

Most Republicans, and some Democrats, want to extend the tax cuts for everyone, characterizing any tax increases on anyone in this fragile economy as unwise. If no action is taken, taxes on income, dividends, capital gains and estates will all rise.

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Has the U.S. Lost its Grip on the Credit-Rating Business?

There's a new name in the credit-rating-agency business these days: It's Dagong Global Credit Rating Co. Ltd., and this Beijing-backed business is China's bid for a spot in the global-credit-rating oligopoly.

And Dagong's Chairman Guan Jianzhong doesn't think much of his long-established U.S. competitors.

"The Western rating agencies are politicized and highly ideological and they do not adhere to objective standards," Jianzhong told The Financial Times earlier this month.

Is he right? And does the newly passed Wall Street Reform and Consumer Protection Act correct their flaws, or does it make matters worse? It's a question that affects all investors – even those of us that don't invest in bonds, as we'll soon see.

To understand how credit-raters will influence investments going forward, please read on...

Stocks Stuck in Trading Range Despite Positive Earnings Reports

Despite positive earnings reports last week from more than a few bellwether companies, stocks remain stuck in a trading range that continues to test investors' patience and skill.

Stocks launched higher last week in another round of the hyper-volatile action that has plagued the equity markets over the last three months. The good news is that some technical resistance was knocked out in the process, potentially setting the stage for a bigger rally in weeks to come.

The not-so-great reality: Stocks remain mired in the same range that has boxed them in for the past three months because, let's face it, despite their strong move they really only ended the week a fraction above where they started the previous week.


 

Read more about which stocks are leading the pack...

Why Second Quarter Earnings Haven't Spurred a Stock Market Rally

Second quarter earnings season is in full swing on Wall Street and investors are keeping a close eye on corporate profits.

But rather than pinning their hopes on earnings for relief from the recent downturn in stocks, investors seem to be suffering from tunnel vision. They're ignoring numerous positive earnings reports and instead focusing on macro-economic trends to determine the day-to-day fate of the markets.

And as a slew of economic reports continue to display conflicting trends, investors are finding it difficult to read the tea leaves. So far this earnings season, the market and the investors that drive it are all over the place.

The result has been a string of volatile trading days featuring gyrating and erratic stock trading. 

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Buy, Sell or Hold: United Technologies Corp. (NYSE:UTX) is Really Taking Off

We have already seen strength in industrial sales in many companies, but today's recommendation may be the most promising yet. United Technologies Corp. (NYSE:UTX) is hitting on all cylinders and is poised for both long and short-term gains.

The company reported earnings and hit it out of the ballpark.  UTC reported quarterly earnings of $1.20 per share – even including the loss of 12 cents a share due to restructuring charges.  That's 4 cents higher than analysts had expected – 16 cents higher, if you take out the one-time restructuring charges. 

The good news did not stop there, either. UTC raised its guidance and share repurchases for the year, despite new challenges in Europe. Sales beat expectations and profit margins were higher across the board.  Engine maker Pratt & Whitney and international elevator brand Otis were especially strong. That's remarkable considering the market's fear of a double-dip recession and the U.S. Federal Reserve's "uncertain" status about the strength of the economy.

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MLPs Top the Yield Charts, but Don't Overlook the Risks

With bank and money market rates bumping along between 1% and 2%, 30-year Treasury yields barely edging above 4%, and many old standby companies having slashed or eliminated their dividends, it's been a rough year or two for income-oriented investors.

As a result, many have turned an eye toward Master Limited Partnerships (MLPs), virtually the only game in town with the potential to give you a double-digit yield on your cash.

MLPs, for those not familiar with them, are tax-advantaged limited partnerships whose units are traded on stock exchanges, just like the regular common shares of corporations. MLPs provide very high yields – typically 5% to 12% – because U.S. law mandates that they pass most of their income on to unit holders. As such, it's not taxed at the partnership level.

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Question of the Week: Readers Respond to Money Morning's Credit Score Query

More Americans than ever before are seeing their credit score slip to the subprime level, according to a new report released last week by credit-scoring firm Fair Isaac Corp. (NYSE: FICO). That means it's going to get a lot tougher for U.S. consumers to borrow money – especially given that banks are becoming more and more reluctant to lend.

"It's hard to see the good news in this report, unless you are speaking for the payday lenders, title lenders, and pawn stores," said John Ulzheimer, president of consumer education at Credit.com.

The FICO report shows that 25.5% of consumers – or nearly 43.4 million people – have a credit score below 600, putting them in the subprime realm. That makes them a high risk for lenders and means they'll have a tough time getting a credit card, mortgage or auto loan under stricter lending standards.

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