Sunday, June 24, 2012

The Week Ahead (Updated)

Durable goods, the gross domestic product, and personal income and spending -- this is a heavyweight week for econ reports. All three will be released at 8:30 a.m. Eastern on their respective days.

The big market mover of the week, however, isn't an econ report at all. The Supreme Court issues its decision on President Obama's health care reform law at 10 a.m. on Thursday. Since health care costs affect every business in the country, not to mention ever household, their ruling will have an impact.

(On my personal Facebook page, I've predicted a 6-3 ruling to uphold the reform law, with Justice Kennedy and Chief Justice Roberts voting in the majority. Wise trader that I try to be, however, I haven't put any on money on it. See my reasoning at the end of this post.)

[June 28: The actual vote was 5-4 to uphold. I got the outcome right, but not the vote count. So I'll forego a jubilation dance in the end zone. Still, given the fact that the punditocracy was universally forecasting that the law would be struck down, I'm pretty happy with my call.]

Durable goods, on Wednesday, are orders for big-ticket items. In many ways this is a measure of confidence, because people and businesses don't make such major commitments unless they're sure they can spare the money.

The GDP, out Thursday, gives the final, presumably most accurate, look at the 1st quarter numbers. A surprise here will be impactful, since in the normal course of things it won't change much from last month's release.

Friday's personal income and outlays, from which the savings rate is calculated, answers two all-important questions for economic growth: Are we willing to shop 'til we drop, and can we afford to do it?

Leading indicators:

The weekly report on initial claims for unemployment compensation is out Thursday at 8:30 a.m.

The index of consumer expectations, part of the University of Michigan consumer sentiment report, will be released Friday at 9:55 a.m.

Traders should also keep an eye on these financial leading indicators: The M2 money supply, out Thursday at 4:30 p.m. from the Federal Reserve, and two reported continually during market hours: The S&P 500 index and the interest rate spread between 10-year Treasuries and the federal funds rate.

Other reports of interest:

Monday: New home sales, a smaller share of the market than existing homes, at 10 a.m., and the Dallas Federal Reserve Bank's survey of Texas manufacturers at 10:30 a.m.

Tuesday: The S&P Case-Shiller home price index in 20 metropolitan areas at 9 a.m., and the Conference  Board's consumer confidence report at 10 a.m.

Wednesday: Pending home sales -- signed but not yet closed -- at 10 a.m., and petroleum inventories at 10:30 a.m.

Friday: The Chicago-area purchasing managers index, from the Chicago Institute of Supply Management, at 9:45 a.m.

Also, one of my favorites, although no one really pays attention to it. The State investor confidence index, from the Boston financial company State Street Global Markets, tracks levels of risk in investment portfolios, and from that derives a number for investor confidence. It's out Tuesday at 10 a.m.

I've never seen the investor confidence index reported by any news outlets, but you can find it here, straight from State Street.

Practical trading:

By my rules, as of Monday I can trade July vertical and butterfly spreads along with iron condors,  and October single options and straddles. The short legs of my diagonal and calendar spreads will expire in July. Of course, shares are good at any time.

Good trading!

Health care reform: Here's the reasoning behind my guess on how the Supreme Court will rule on health care reform.

The justices aren't shy about overturning laws, but they hate to be openly partisan. And nothing in recent history is more partisan than the health-care reform law.

They will take partisan acts with strong constitutional backing, as with the Citizens United case that removed restrictions on political campaign spending by corporations. There was a strong 1st Amendment argument to be made in that case.

No such strong constitutional provision is available in connection with health-care reform.

Also, today's 5-3 ruling on the Arizona immigration laws may well be a sneak preview of the health-care reform decision. (It would have been 6-3  but Justice Kagan recused herself.) Both cases turn on long-stranding federal powers derived from the constitution: Regulation of immigration in the Arizona case and regulation of interstate commerce in the health care reform case.

In Arizona, the court came down firmly on the side of federal rights. I think they'll do the same in health care reform.

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