Where is the Stock Market and the U.S. Economy Heading?

Today’s impressive rally in the U.S. stock market is little more than “white noise,” as the macro picture remains glum, problems in Europe aren’t going to suddenly go away and the technical picture remains unchanged. On a macro level, the “good” news today was based on President Obama’s widely anticipated “jobs” speech tomorrow night in which he is going to announce a $300 Billion program to create millions of jobs.  Just two problems here.  This is more spending in a time of deficit reduction and the Republicans promptly said they’re going to oppose it and so most likely gridlock will continue.

Global stock markets took a big skid into September as shocks from the employment market and banking industry added to an already steady stream of weak economic reports. At Wall Street Sector Selector, we had a nice week as our defensive posture generated gains in most positions.  There is still hope for the bulls, as we’ll discuss in a moment, however, we remain positioned in inverse ETF, put option and cash positions, continuing to expect lower prices ahead.

On My Wall Street Radar:

Stock markets declined and look nervous ahead of August Employment Report

Markets broke their winning streak today as economic reports remained mediocre and investors wait for tomorrow’s Non Farm Payroll Report.

The August ISM report came in at 50.6, down from 50.9 previously and just above contraction level, however, still logged in as the worst ISM reading in two years.

July Construction Spending declined -1.3% compared to a previous reading of +1.6% and this was the largest drop this year.

The big day in Jackson Hole brought Dr. Bernanke with an optimistic long term outlook for the economy and the announcement that his Fed meeting in September will be two whole days instead of one to give time for a fuller discussion of the tools available to the Fed should economic conditions worsen.

The markets liked it with oil rising, along with the major indexes capping an impressive week with the Dow (DIA) up 3.9% for the week and the NASDAQ (QQQ) gaining 5.5%.

Why is This Man Smiling? Jackson Hole is now one trading away and markets smiled today in a late session rally as Dr. Bernanke and the Cavalry start making their way towards the Tetons.

July Durable Goods were a pleasant surprise today, +4.0 vs -1.3 previously and beating expectations.

Gold dropped -4.3% as margin requirements were raised.

Steve Jobs quit Apple after hours and the company dropped a quick -6% which could carry over into tomorrow’s open.

Much has been written about the problems with the PIIGS and the recent U.S. rating downgrade by S&P.

Clearly too much debt in the world is an issue that just won’t go away and today we’ll take a quick trip around the world to take a look at the global debt nightmare that just doesn’t want to end.

In Europe, the “no Eurobonds” decision by France and Germany puts decidedly more pressure on the fringe countries and their overall potential for survival as an economic unity.

It is now fourteen days after the dreaded August 2^nd, and the world has changed. Congress and the President staved off a US default, Europe has not caved (yet), Wall Street saw the most hectic two weeks since 2008, and the United States lost its coveted “AAA” rating from Standard and Poor’s.  Plus don’t forget dismal unemployment reports and an additional downgrade of Fannie Mae and Freddie Mac.  All in all, the last two weeks have been a very interesting experiment in post-apocalyptic ideology.

The roller coaster ride on Wall Street last week indicates three points.  To start, the roller coaster proves that investors simply have no idea where to turn in these historically painful times, as everything we hold dear in terms of investing and net worth continually seems to slip through our fingers into the never ending hole of debt, asset destruction and currency printing presses.  The market has jumped up, fallen down, moved sideways, diagonally, and every which way, all the while mauling portfolios and forcing investors to cry for mercy.