Financial reform, the Goldman Sachs $550 million settlement and corporate earnings to boot--it was a busy five trading days. When it was all over, the week's action boiled down to the same question that has been plaguing markets since the end of April: will the current economic slowdown degenerate into contraction (the so-called "double-dip")? If yes, then the recent drop in world stock prices is just the beginning. If not, the recent shakeout will be seen as a buying opportunity.
It bears noting that double-dips are rare: there have only been two since the Great Depression-- one in the 1970s, caused by the oil shock and rising interest rates and a second in the early 1980s, which was caused by a rise in interest rates that helped curtail runaway inflation.
The U.S. economy doesn't have to actually show negative GDP growth to feel bad. A pull-back from 3 percent growth to a slower, 1 - 1.5 percent level will feel pretty rotten and would severely impact the already-rotten labor market. Jobs remain the key to the recovery process.
This week investor attention will turn to second-quarter earnings season, with more than one-third of Dow components set to report, including financial giants Goldman Sachs, Morgan Stanley, Wells Fargo and Bank of America.
Also on tap will be a slew of data on the housing market, which likely declined in June. Mid-week, Federal Reserve Chairman Ben Bernanke will testify before the Senate Banking and the House Financial Services Committees to provide a mid-year update on the economy. President Obama is scheduled to sign historic financial-reform legislation Wednesday.
This morning, Asian stocks fell after Friday's dismal day in the U.S. markets. There was one exception: Chinese stocks popped by over two percent. European shares traded lower earlier this morning after Moody's downgraded Ireland's sovereign bond rating. The ratings giant cited below-trend growth as the reason behind the cut. Markets recovered and are now holding steady,
There will be more focus on Europe Friday, when the Committee of European Banking Supervisors (CEBS) will release the results of Euro-zone Banks Stress Tests. Like the U.S. bank stress tests that were conducted last year, the tests are intended to examine the ability of 91 European banks (two-thirds of the sector) to withstand losses on sovereign-debt holdings. The test will assume a 3 percent decline in EU GDP over the next 2 years, compared to forecasts of 1 percent growth this year and a bit more than that in 2011.
U.S. stock futures are pointing slightly higher, but the day is young! Here's where we start the week:
DJIA: 10,097, down 1 percent on week, down 3.2 percent YTD
S&P 500: 1064, down 1.2 percent on week, down 4.5 percent YTD
NASDAQ: 2179, down 0.8 percent on week, down 4 percent YTD
August Crude Oil: $76.01
August Gold: $1,188.20
Total bank failures for 2010 = 96 (six new bank failures over weekend).
Jill Schlesinger is the Editor-at-Large for CBS MoneyWatch.com. Prior to the launch of MoneyWatch, she was the Chief Investment Officer for an independent investment advisory firm. In her infancy, she was an options trader on the Commodities Exchange of New York.