U.S. stock exchange traded funds saw an early rally fade Monday after a weak manufacturing report for July raised concerns the economy is stuck in a soft patch.
Equity ETFs opened sharply higher Monday after the Obama administration and congressional leaders reached a deal to raise the debt ceiling and cut spending by more than $2 trillion over the weekend.
However, stocks fell into the red after the Institute for Supply Management said its manufacturing index fell to 50.9 in July from 55.3 the previous month. [Industrial ETFs Fall]
“Now that a tentative agreement has been reached between the President and Congressional leadership on the debt ceiling, markets will focus on whether these leaders can corral enough votes on both sides of the aisle to covert this agreement into law,” said David Kelly, chief market strategist at JP Morgan Funds.
“In addition, both left-wing Democrats and right-wing Republicans may vote against the measure, suggesting that, if the deal is not passed, it will be hard to find a modification which could get through Congress,” Kelly wrote in a note Monday. “So while global markets should react positively to final passage of a deal, a negative vote in either the House or the Senate could lead to a ‘TARP moment’ with a severe stock market sell-off.”
Investors will also be waiting to see if major ratings agencies such as Standard & Poor’s, Moody’s and Fitch downgrade their ratings on U.S. government bonds.
SPDR Dow Jones Industrial Average ETF
Full disclosure: Tom Lydon’s clients own GLD and SLV.