Weekly Recap - Week ending 21-Aug-09U.S. equity markets had shown little direction in the first two weeks of August, range trading near their 2009 highs. But volatility returned this week, with the major indices reversing a sharp Monday decline to close with gains. The S&P 500 added 2.2%.

All 10 sectors that make up the index advanced, led by Energy (+3.2%) and Health Care (+2.9%). In regard to the latter, Democratic leaders said this week they may attempt to pass health care reform that includes a public insurance option without Republican support, which had the effect of raising doubts on the reform effort, helping health care stocks rally.

Getting back to the broader market, China was in focus early this week. Following a 109% rally from October through the beginning of August, a 5.8% plunge on Monday -- which helped the S&P 500 close down 2.4% that day -- and another 4.3% decline on Wednesday brought the Shanghai Composite to a two-week correction of 20%.

At first equity markets around the world followed suit, as China would be an integral part of any global economic rebound. But as we've seen throughout the market's five-month rebound, buyers stepped in, specifically on Wednesday when the major indices quickly regained opening losses and then surged higher just before midday, though on no specific catalyst.

The buying effort was particularly evident in reaction to this week's economic data. We had negative housing data on Tuesday -- July Housing Starts 581,000 vs. 599,000 consensus; Building Permits 560,000 vs. 577,000 consensus -- and negative employment data on Thursday -- Initial Jobless Claims 576,000 vs. 551,000 consensus -- but equities closed modestly higher both days. Then on Friday, a better-than-expected Existing Home Sales figure (5.24 million vs. 5.00 million consensus) led to a 1.9% rally in the S&P 500.

So investors are effectively ignoring poor economic data while going long the positive data. The end result is all four of the major indices listed below made fresh 2009 highs on Friday.

Looking ahead to next week, economic data takes center stage. The housing numbers continue with the June S&P/Case-Shiller Home Price Index on Tuesday, Aug. 25 and July New Home Sales on Wednesday, Aug. 26. That day will also feature July Durable Goods Orders. All of this leads up to the Preliminary reading for second quarter GDP on Thursday, Aug. 27. The current consensus is for a revision to -1.4% from the Advanced reading of -1.0%.

Index	Started Week	Ended Week	Change	% Change	YTD %
DJIA	9321.40	9505.96	184.56	2.0	8.3
Nasdaq	1985.52	2020.90	35.38	1.8	28.1
S&P 500	1004.10	1026.13	22.03	2.2	13.6
Russell 2000	563.89	581.51	17.62	3.1	16.4