August 05, 2011 05:20 PM UTC

Markets Recovering From Yesterday's Terrifying Sell-Off

•  
• by: Colorado Pols

UPDATE #2: Dow ends up 61 for the day, but Standard & Poor’s downgrade of the U.S. credit rating to AA+ from AAA spells uncertainty for Monday:

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade…

The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year’s wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently…[i]t appears that for now, new revenues have dropped down on the menu of policy options. [Pols emphasis]

—–

UPDATE: So much for that “rally”–Dow down 204 points as of 10AM.

—–

If you haven’t yet checked your investments are yesterday’s 500-point plunge, you might want to wait until the closing bell today–it could be a little better for your blood pressure. CNN:

Employers added 117,000 jobs last month, well above the 46,000 jobs added in June, and easily topping the 75,000 gain predicted by economists surveyed by CNNMoney.

Weak job reports for both May and June were revised higher, adding a combined 56,000 jobs for the year.

Businesses were busy hiring, adding 154,000 workers in the month, topping forecasts of 100,000 new jobs. But those gains were tempered by a loss of 37,000 government jobs, mostly from state and local governments, where budget shortfalls led to layoffs in July, especially in Minnesota where the government was briefly shut down…

In just the last week, data on consumer spending, manufacturing, job cuts and gross domestic product have all raised concerns that the slowing economy could fall back into recession. Major stock indexes have lost 10% of their value in the last two weeks amid growing worries.

But these welcome better jobs numbers, albeit still hampered by public-sector job losses, flipped market futures into positive territory today. It could be short-lived optimism, though–the Economic Policy Institute estimates that the recent debt-ceiling compromise will result in some 1.8 million more lost jobs by 2012 due to public sector job loss and the loss of extended unemployment compensation. If that makes you think maybe the United States has been obsessively focused on the wrong problem…it looks like you might be right.