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The Struggle Ever Renew'd By WSS Research Team

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By Jennifer Coombs, Research Analyst

After the proverbial beat-down endured by the market yesterday, things are certainly looking up today. All of the major equity indices are trending to regain all of the losses endured yesterday, with the NASDAQ back up over 1.0%, and the Dow Jones Industrial Average back to above the 17,000-level. The markets actually received further relief after President Obama noted that the Malaysian plane was shot down by a surface-to-air missile and that it happened in Separatist territory where they had previously shot down Ukrainian transport planes. Ultimately, this was not an act of war by the Russian government, nor was it a malfunction of Boeing's aircraft, but it remains a tragedy nonetheless. The show goes on today, and two mixed economic releases are having only marginal impact on trading.

Firstly, the University of Michigan Consumer Sentiment Index fell to 81.3 in the preliminary reading for July, from 82.5 in June. Consensus was much more optimistic and expected the index to increase to 84.0. We note that sentiment levels typically follow changes in employment, gasoline prices, equity prices, and media reports - all of which have been positive, so far in July. All in all, we find this reading bizarre since the improvements in the aforementioned categories should have manifested as a large upward tick in sentiment. We don't think that this drop in sentiment will have a major impact on consumption trends; as long as personal incomes continue to rise, consumption levels should also increase. Often inflation levels can corrode confidence in future earnings, but the related readings in this report are mixed. One-year expectations are on the rise, up 2 tenths to plus 3.3%, but five-year expectations are in retreat, down 3 tenths to 2.6%. In the end, the consumer sector is struggling to build up strength, but the spending is still keeping the economy afloat at the moment.

In addition, the Conference Board of Leading Economic Indicators for the month of June showed a slight decline from May. Indicators were up 0.3% compared to a 0.5% increase the month before, and below consensus' expectation of a +0.5% reading. So far, 8 of the 10 components in the index were publically known prior to the release, and the differences between the actual reading and consensus is generally small. The worries continue to be concentrated in the housing sector, specifically based on yesterday's data on building permits. As such, it is the housing outlook continues to hold down the overall economic outlook. Other than that, the report was mostly positive since 7 of the 10 components posted gains and were deemed optimistic by the Federal Reserve. The stock market itself was a positive indicator, as were new orders in the manufacturing sector. Other notable readings include a tepid 0.2% rise in the coincident index, which follows gains of only 0.3% and 0.2% in the two prior months and which will not confirm expectations for a big updraft in second-quarter GDP.