Although one could argue that the downgrade of long-term U.S. government debt was not a surprise, the market’s reaction on Monday would indicate that the timing, in fact, may have been. All three main rating agencies had warned that the U.S. debt rating was on their watch lists with negative outlooks, but Standard & Poor’s was quite clear about what type of concerted policy action and spending cuts that it was looking for right off the bat. So, when Congress came up short with only $2.4 million in definitive cuts, and in the process displayed a strongly divided Congress unable to rise to the occasion, investors should have counted on a downgrade. But the fact that it came just one week after the debt-ceiling agreement, and that it capped a week of widespread equity selling, caught many off guard.

It is often difficult to extricate the real reason for a correction, especially when many factors are often converging to tilt the market in one direction or another. Last week, a combination of factors, including weaker economic data, the apparent end to fiscal stimulus, and the potential downgrade were all reasons enough for investors to become more cautious. But when trying to price-in an unprecedented market event—the act of losing what has been deemed a “risk free” asset for the past 70 years—it can be difficult to gauge the potential market reaction, which all at once must take into account anything from complex financial modeling to public reaction.

The good news, however, is that Treasuries are still the risk-free fixed-income asset of choice, at least based on this week’s trading activity. Even though the announcement came just as the 10-year Treasury yield had fallen to a nine-month low of 2.5%, investors came out Monday clamoring for safe haven assets and Treasuries, in particular. As we saw during the financial crisis in 2008, Treasury securities can maintain their safe-haven status even in extremely difficult times. Treasuries are viewed as high quality, and no other government bond market can match the size, liquidity, and transparency offered by the U.S. Therefore, governments and institutions alike will continue to turn to this market for their high-credit needs. Moreover, the U.S. boasts the largest economy in the world and still holds the world’s reserve currency.

Given the severity of the stock-market slide in recent weeks, investors of all stripes have turned bearish, and it would appear they are increasingly pricing in the chance of a recession. The advent of a double-dip recession would likely take the markets even lower from here, however; so with the help of research from Federated Investors, I thought it would be good to review some common recessionary signposts, none of which are flashing dire warnings just yet.

For one, the yield curve almost always inverts as early as 14 months prior to a recession, but the curve remains upward sloping even with the recent rally in Treasuries. Moreover, recessions are often induced by the Federal Reserve, once it moves toward a tightening bias. Yet the Fed has maintained a well-advertised campaign to keep interest rates near zero—even extending their commitment to 2013 in an announcement this week—as well as an expansive balance sheet in order to keep credit available and the economy well-supported. Unemployment also remains at elevated levels rather than entering a trough; this is not usually the case when the economy is shifting gears or signaling a recession.

The next few weeks could be pivotal in determining the direction of the market. Macroeconomic concerns need to subside, so that investors can focus on incoming economic data and assess whether corporate earnings can hold up again this quarter. If so, we are likely to find support at these levels and, given that valuations are attractive, the bull rally should continue.

Investors should also consider that Dunkin’ Brands is owned by a consortium of private-equity firms and is carrying nearly $1.9 billion worth of debt on its books. The offering today raised $423 million for the company.

That said, Dunkin’ Brands is no Internet 2.0 flash in the pan, and I like this company not only because it’s a homegrown Massachusetts success story but because it’s a solid franchise with a lot of growth potential, given its lack of penetration in markets west of the Mississippi.

ETF investors looking to get in on the Dunkin’ Brands action might want to consider a consumer discretionary or small-cap growth fund, although there’s no guarantee that any of the funds that currently hold peer stocks like Starbucks (SBUX) , Chipotle Mexican Grill (CMG) or Panera Bread (PNRA) will add Dunkin’ Donuts when their indices rebalance.

The Consumer Discretionary SPDR (XLY) , for instance, only holds S&P 500 components, and Dunkin’ Brands obviously hasn’t made that cut yet. Small-cap growth funds like the iShares Russell 2000 Growth ETF (IWO) and the Vanguard S&P Small-Cap 600 Growth Fund (VIOG) have similar index restrictions. This isn’t to say, of course, that Dunkin’ Brands won’t one day make its way into a marquee name index; it’s just not going to happen right away.

The PowerShares Dynamic Food & Beverage Portfolio (PBJ) uses a home-grown index that rebalances quarterly, and Dunkin’ Brands appears to fit its investment criteria. The First Trust Small Cap Growth AlphaDEX ETF (FYC) and the PowerShares Fundamental Pure Small Growth Fund (PXSG) also use proprietary indices and are thus more likely to incorporate Dunkin’ Brands into their holdings in the near term.

Disclaimer

Gold, in particular, has generated mass appeal as prices ascend through the $1,600 per ounce level, locking in all-time highs.

With this rise, investors may be tempted to dive headlong into physically-backed ETF products like iShares Gold Trust (IAU) or SPDR Gold Shares (GLD) . However, I encourage investors to keep an eye on other gold-related exchange traded products as well.

Gold miners, for instance, have become an interesting corner of the markets to keep an eye on as the defensive precious metal remains in the spotlight. Investors can take aim at the companies responsible for unearthing this yellow metal using funds such as the Market Vectors Gold Miners ETF (GDX) or Market Vectors Junior Gold Miners ETF (GDXJ) (GDXJ).

While they lagged the physical asset during much of the first half of the year, in recent weeks the gold mining industry appears to have found some footing.

Year to date, bullion products like IAU are still handedly beating out GDX. However, the miner-backed GDX managed to gain impressive ground in July, allowing the fund to outpace IAU over the past 30-day period. During this timeframe, GDX was up nearly 15% while IAU jumped less than 5%.

Its performance during July was impressive. However, the party does not appear to be over for gold miners or GDX. In comments made to

While record-breaking gold prices will keep miners buoyed in the coming days, the industry could get an additional boost from this week’s earnings calendar. During the week, investors will gain ample insight into the current state and future outlook for the gold industry when Goldcorp (GG) , Newmont Mining (NEM) and Barrick Gold (ABX) step up to announce their quarterly earnings numbers. GDX will be heavily influenced by the performances from these three firms. GG, NEM, and ABX are the fund’s top three index components and together account for over 35% of its total assets.

Gold miners are showing strength, but this does not mean that investors should abandon exposure to physical gold holdings. On the contrary, I have long viewed bullion-backed products like IAU and GLD as portfolio staples. A product like GDX is best utilized as a tactical compliment to these long-term holdings.

In early June, I encouraged investors to avoid overlooking the gold miners , noting that during the latter half of the year this slice of the gold industry could be in for standout strength. As we have seen in recent weeks, this forecast has begun to show promise. Looking ahead, I encourage investors to keep a close eye on GDX.

Market Vectors Gaming ETF (BJK)
Last week, Wynn Resorts (WYNN) reported earnings, providing investors with insight into its performance over the past quarter and outlook for the gaming industry. The numbers were strong, highlighted by double-digit revenue increases at both its Las Vegas- and Macau-based establishments.

The standout performance seemed to be overshadowed, however, by the bold comments by CEO Steve Wynn in the conference call. When discussion turned to the topic of government, Wynn said, “This administration is the greatest wet blanket to business, progress, and job creation in my lifetime.”

Wynn’s strong earnings have set a high bar for the gaming industry and looking ahead, it will be interesting to see how other firms from this corner of the consumer sector hold up. This week, Las Vegas Sands (LVS) and International Gaming Technology (IGT) will be on tap. Both firms can be found among BJK’s top five holdings. Together, they account for over 15% of the fund’s assets.

Materials Select Sector SPDR (XLB)
The materials sector will be a big focus this when DuPont (DD) , Dow Chemical (DOW) , Praxair (PX) , International Paper (IP) and Newmont Mining (NEM) report earnings. Already, earnings season has boded well for XLB components such as Alcoa (AA) and Monsanto (MON) .

Although XLB struggled during much of the closing weeks of the second quarter, it appears to have found some footing heading into the second half of the year. There are still looming macro issues for this growth-oriented industry. However, it will be interesting to see if strong earnings results can push the fund back to previous 2011 highs.

iShares MSCI Israel Capped Investable Market Index Fund (EIS)
This earnings season will play a major role in directing the performance of the Israel ETF. On Wednesday, both Teva Pharmaceuticals (TEVA) and Nice Systems will step up to the plate. Both companies can be found among EIS’ top 10 holdings.

On a number of occasions I have warned investors of the challenges that come with overexposing to top heavy products. EIS is a prime example of such a fund. Although it is designed to provide investors with expansive exposure to the Israeli marketplace, nearly a quarter of its assets are dedicated to TEVA.

EIS should see a nice boost in the event that TEVA beats analyst expectations. However, in order to protect against weakness, any exposure to this fund should be kept small and focused.

iShares S&P Global Energy Sector Index Fund (IXC)
Top global energy companies, including Exxon Mobil (XOM) , Total (TOT) , BP (BP) , Royal Dutch Shell (RDS.A) , and Chevron (CVX) will be on tap for earnings this week.

While there are a slew of ETF products available that allow investors to target the energy sector, ETF investors looking to gain instant exposure to these domestic and international goliaths would be best off using IXC.

It will be important to keep any exposure to this fund contained, however. With regions like the U.S. and EU still struggling to work out their respective debt issues, many remain concerned about the global economic recovery. Since the energy sector performs best during periods of growth, any signs of a slowdown could hinder the fund’s upward action.

iShares Dow Jones U.S. Home Construction Index Fund (ITB)
Although many will have their sights set on earnings action this week, on the economic front, a number of important data points are slated to be released. On Tuesday, for instance, there will be the new home sales report, providing insight into the state of the housing industry and home builders.

ITB has struggled throughout most of 2011 as issues continue to plague the residential real estate industry. Since dipping below its 50-day moving average in late February, this level has proven to be a persistent point of resistance.

On the other hand, real estate investment trusts continue to witness strength. The iShares Cohen & Steers Realty Majors Index Fund (ICF) has seen a nice run higher and is currently testing previous 2011 highs.

Disclaimer

The rebound from June lows has occurred even though sovereign debt issues remain largely unresolved, particularly among the U.S. and European nations. The ceremonial dance on Capitol Hill has meant that legislators have made little headway in the ongoing debate over whether or not to extend the federal debt ceiling, even if a compromise is widely expected. The delayed agreement, however, which is meant to exact the most amount of leverage on the opposing side, has only hurt the U.S. dollar and kept it from rebounding.

Meanwhile, the behavior and relative strength of the euro over the past few months, even in light of heightened chaos amid troubled European nations such as Greece, Italy, and Portugal shows that there still remains strong underlying demand for euros and the bonds of more stable nations such as Germany and France. This week EU leaders held an emergency summit, releasing a draft statement that announced an orderly default for Greece was possible, as well as an expansion of the rescue fund that could be tapped to recapitalize banks and stave off contagion if necessary.

The debt-ceiling impasse here in the U.S. has also hampered consumer confidence, although you would not know it by watching the retail numbers. Last Friday’s release of the University of Michigan’s sentiment brought confidence readings down to the lowest level since March 2009. Moreover, the publicity over the budget battles brought public discontent to new heights for the Obama administration, with more than 50 percent of respondents rating government economic policies as “poor.” Only five other surveys in the past 50 years have resulted in a majority voicing a negative opinion as high as this. However, just as similar policy debates surrounding the Congressional elections resulted in a decline in confidence, a rebound is expected once a deal is struck, even if it is short on specifics.

The contrasting rise in retail numbers this week is a classic case of, “watch what I do, not what I say.” The ICSC store sales index rose for the fourth consecutive time since mid June and is now up more than 3.1 percent month over month, and the annual pace continues to accelerate. This combined with a positive reading from the Philadelphia Fed’s manufacturing survey and a stronger index of leading economic indicators (LEI) to provide hope that the summer soft patch will be cut short. With earnings season now in full swing, we will soon know whether or not companies can continue to beat estimates and provide upward guidance for the rest of 2011.

Disclaimer

It is not uncommon to see sectors converge at this stage of the business cycle. As the profit recovery has matured, market returns can moderate and leadership can change. Investors will often seek out high-quality stocks that may have attractive valuations and sustainable dividend policies, offering higher returns on equity. This is especially true if earnings growth begins to wane, when there is a more balanced performance between defensive and cyclical sectors.

The question is whether we have finally reached the stage at which earnings growth will moderate. Earnings season is underway, and the major companies that have reported so far are reporting results that are in line or better-than-expected. The expectations are that continued momentum in manufacturing and ongoing strength in emerging markets will be underlying themes. Even though lower credit costs for banks is considered positive, a high-profile write-down by Bank of America has weighed on the financial sector. As always, overall guidance is expected to be cautious in this post-crisis environment.

Most economists and analysts were focused on “Fed speak” this week, including the semiannual testimony before Congress by the Federal Reserve chairman, as well as the release of the June Federal Open Market Committee (FOMC) minutes. Released on Tuesday, the minutes revealed that committee members maintained a strong emphasis on inflation, especially by those who would advocate for additional monetary policy accommodation if the threat of deflation returned. The FOMC remains concerned that a slowdown in manufacturing would be broad based.

However, the most recent economic data released this week offered a fresh perspective on those concerns. Both the consumer price index (CPI) and the produce price index (PPI) illustrated that inflation was alive and well. Even though the CPI fell, core prices were higher and the year-over-year core measure climbed to 2.5 percent from just 0.8 percent last December. The core PPI also escalated, pushing the annual pace to 2.4 percent, with much of the change coming in the past six months. This pressure in core prices will make it harder for the Fed to engage in the same type of monetary easing.

Nevertheless, Fed Chairman Ben Bernanke did more explicitly mention the possibility of additional quantitative easing during his live testimony before Congress on Wednesday. Stocks rallied on the news, and bond prices fell. The comments stem from his outlook that any persistent economic weakness or deflationary risks would call for an additional response, which may or may not include direct security purchases. What the market has overlooked, however, are his previous comments on Fed research showing the limited effects of quantitative easing in terms of job growth, perhaps because it is viewed as supportive of equity prices.

Even as the S&P 500 flirts with returning to negative territory for the year, this is nothing out of the ordinary. In fact, over the past 20 years, the broader index has turned negative at least once in every year except 1995, the most bullish year in the entire sample, and the average price change from the start of the year to the lowest point was a 10.4 percent decline.

These three summer months beginning in June often provide a challenging market environment for long-term investors. When analyzing seasonal summer weakness, however, it is important to note that pre-presidential election years such as this one are much stronger, with cumulative gains of 2.92 percent on average since 1929. Although history does not always repeat itself, there remains an historic upward bias to this year, nevertheless.

Disclaimer

Up until this week, volatility measures have not indicated a growing sense of fear or panic, as they have in previous corrections over the past two years. In fact, risk appetite has been quite resilient. This is, in part, a testament to the fact that investors now have higher confidence in the outlook for a sustainable recovery. Not only have corporate earnings continued to grow robustly over the past year, but both macroeconomic and fiscal policy responses have been measured and well-timed to keep economic growth on track.

The question is whether we can expect the market to respond in similar fashion to match last year’s extensive rebound, given that not only are we further along in the business cycle, but we cannot count on policy encores due to the heightened political pressure. Nevertheless, even in light of this more subdued backdrop, the stock market should have other sources of support. For example, the business cycle may be more mature, but the high levels of corporate earnings and profitability remain.

Also, valuations have not run amok, meaning they are in line with underlying fundamentals. It could be that they reflect ongoing risks, but world markets are trading at less than 12 times forward earnings estimates. This is well below the average 16 multiple, or even a lower multiple of 15 if we account for frothier markets like the tech bubble or crashes like the recent financial crisis. Therefore, barring any prolonged risk aversion, there is room for multiple-expansion and a re-rating of stocks by investors, allowing for additional upside once the market resumes its ascent.

So far, 2011 has proven to be an interesting and controversial year for Berkshire Hathaway ’s (BRK.A) fractional jet ownership company, and there is a good chance that the Oracle of Omaha will use the event as a chance to ease tensions and restore customer confidence in the firm.

Since Berkshire Hathaway initially acquired NetJets in 1998, the company has been a tricky investment. As Buffett noted in his 2010 Berkshire Hathaway letter to shareholders, “(e)ven though NetJets was consistently a runaway winner with customers, our financial results, since its acquisition in 1998, were a failure.

“Despite its troublesome past, over the past year, the company’s prospects have begun to shift in a new direction. Following a dramatic restructuring, which included replacing the company’s former CEO, Richard Santulli with David Sokol, the firm managed to end 2010 on a strong note. By the close of year, the company boasted $207 million pre tax.

Disclaimer

Heading into the start of 2011, it appeared as though NetJets had finally found its footing and was on track to become another financially successful component of Berkshire Hathaway’s expansive portfolio. However, the company’s triumphs were quickly overshadowed when David Sokol unexpectedly announced his resignation from Berkshire Hathaway.

Almost immediately, controversy began to swirl around Sokol when it was learned that the executive had made some questionable trades leading up to Berkshire Hathaway’s Lubrizol (LZ) acquisition. Following an official investigation, a Berkshire committee found that Sokol’s actions were in violation of the company’s code of ethics.

The negative media storm surrounding Sokol’s trades and resignational has likely reflected poorly on NetJets. However, in the aftermath the firm has taken steps to ensure that it will effectively move beyond this dark period and prepare for strength down the road. This has included placing Jordan Hansell, NetJets’ president, in the vacated CEO spot.

Although it has faced staggering trials, looking ahead, the outlook for NetJets and the corporate jet industry as a whole appears promising. As

NetJets, meanwhile, has continued to expand. At the start of March, it was announced that the firm had placed a multi-billion dollar order with airplane maker Bombardier to purchase up to 120 new crafts. More recently, firm signed a lease with Signature Flight Support that will provide NetJets with access to a private terminal at Palm Beach International Airport.

Berkshire Hathaway has had a storied history with NetJets. Now, with new names at the helm, and the company showing signs of financial strength, it appears as though a new chapter is being written. Fans of both Warren Buffett and the airline industry will want to keep a close watch on this unique corner of the Berkshire Hathaway Empire to see how it fares in the months ahead.

iPath S&P 500 VIX Short Term Futures ETN (VXX) 3.6%

Although the U.S. markets are seeing gains, the global economic trials continue to weigh on investor confidence. The fear-tracking VXX and iPath S&P 500 VIX Mid Term Futures ETN (VXZ) are in positive territory. Thursday’s gains have pushed VXX above its 50-day moving average for the first time since late March.

Market Vectors Vietnam ETF (VNM) 2.2%

Although it has staged an impressive comeback in recent weeks following its dramatic mid-March downturn, VNM continues to be noticeably volatile. Frontier markets like Vietnam must be approached with caution as we work our way through the current rough patch.

iShares Dow Jones U.S. Home Construction Index Fund (ITB) 1.5%

Homebuilders are witnessing some strength following a positive round of housing-related data points. Despite this action, I urge long-term investors to search elsewhere for real-estate exposure. Although they are lagging ITB today, the iShares Cohen & Steers Realty Majors Index Fund (ICF) and the iShares Dow Jones U.S. Real Estate Index Fund (IYR) will likely behave in a more stable manner over time.

iPath Dow Jones UBS Cotton Subindex Total Return ETN (BAL) -4.0%

The futures-tracking cotton ETN is leading the market lower. Thursday’s losses mark the fund’s fifth consecutive day of declines. This descent has pushed BAL below its 200-day moving average. The last time the fund traded below this level was mid-July 2010.

United States Natural Gas Fund (UNG) -3.5%

Interestingly, although the weekly storage report from the Energy Information Administration noted that stockpiles increased by less than expected, it is doing little to boost natural gas prices. Both UNG and the iPath Dow Jones UBS Natural Gas Subindex Total Return ETN are in negative territory.

The equity-tracking First Trust ISE Revere Natural Gas Index Fund (FCG) is faring better than its futures-backed cousins. The fund was seeing small gains in early afternoon trading.

Market Vectors Gold Miners ETF (GDX) -2.4%

Gold miner ETFs are heading south, leading a diverse pack of precious metal-related ETFs to losses. Interestingly, although producers are lagging, physically-backed gold funds like iShares Gold Trust (IAU) are generally unchanged.

Although they have run into headwinds, I feel that the gold mining industry may be a market region to keep an eye on in the near future. For more on this topic, be sure to check out this morning’s piece. It can be accessed by clicking here.

However, there are options gold-hungry investors may want to consider including gold miner-backed funds like the Market Vectors Gold Miners ETF (GDX) and Market Vectors Junior Gold Miners ETF (GDXJ) . Unlike GLD and other physically-backed products, GDX and GDXJ do not track a physical stockpile of the yellow metal. Instead, the two funds spread their assets across a wide collection of global gold producers.

Of these two funds, GDX stands out as the strongest and most stable option for conservative, long-term focused investors. Top holdings include Barrick Gold (ABX) , Goldcorp (GG) and Newmont Mining (NEM) .

GDX has struggled in recent months, dipping over 13% year to date through June 14. However, as we look ahead to the second half of 2011, this fund could be in for a comeback.

There are a number of benefits to owning gold miners.

For one, the equity exposure gained through holding a miner-focused fund like GDX will be beneficial when the markets eventually get back on track. The companies underlying this fund are primarily dedicated to the production of gold and will therefore benefit as investors clamor for exposure to the resource. However, it is important to note that, like other market sectors, gold miners also do well during times of market optimism.

Secondly, although they have lagged against their physically-backed cousins throughout the metal’s staggering 2011 run up, gold miners have a long history of outperforming bullion during periods in which gold has risen sharply.

Gold miners are also becoming a welcomed destination for income-seeking individuals. This week,

Currently, GDX has a 0.6% yield.

As the global marketplace works its way through this current rough patch, investors are being reminded of the importance of setting aside exposure to market safe havens. Even those who unwaveringly maintain a bullish outlook towards the future can benefit from the protective qualities of dividend-paying equities, bonds and gold. These assets will help to mitigate the effects of sweeping market fear.

Although they have witnessed sub-par performance during the opening months of the year, investors may want to keep a close eye on the gold miners as we move ahead. Used in collaboration with a physically-backed gold fund, products like GDX can provide investors with welcomed relief against economic headwinds.

Disclaimer