For the week ending June 12, 2015, the markets were slightly up with the Dow up 0.3 percent and the S&P 500 up 0.1 percent. Economic data for the second quarter shows improvement, with strong gains in retails sales and a positive consumer sentiment report. The markets were choppy as news on the Greek debt crisis vacillated from good to bad, and as the World Bank lowered global growth estimates and suggested that the Feds maintain current interest rates till the first half of 2016. Below is a recap of the markets for each day of the week.
The markets were down on Monday on little economic news. Oil edged lower to $58.50. The Dow dropped -0.5 percent to 17,766; the S&P 500 dropped -0.65 percent to 2,079.
On Tuesday the markets rose on the JOLTS report, with historic gains for job openings in April. Oil rose over $1 to $60. The Dow dropped fractionally to 17,764; the S&P 500 rose fractionally to 2,080.
On Wednesday the markets bounced back on news that Germany is moving toward an agreement with Greece. Oil rose $1 to $61. The Dow rose 1.3 percent to 18,000; the S&P 500 rose 1.2 percent to 2,105.
The markets rose slightly on Thursday due to a mix of strong economic news and bad Greek negotiation news. Jobless claims remained at low levels, while retail sales showed a strong gain; it is now expected that the Fed will raise rates in September. On the bad side, the IMF negotiators threw in the towel and have returned to Washington, increasing the chance of a Greek default. The Dow rose 0.2 percent to 18,039; the S&P 500 rose 0.17 percent to 2,109.
On Friday the markets dropped on strong economic news, but poor news about Greece. Consumer sentiment shot up, along with a good producer price report. News out of Greece is getting worse with a default appearing unavoidable. Oil dropped nearly $1 to $60. The Dow dropped -0.80 percent to 17,898; the S&P 500 dropped -0.70 percent to 2,094.
The Fed stated in their last policy meeting that a weak first quarter was due to “transitory” factors; it appears the Fed was correct with second quarter economic news showing strong improvement with motor vehicle sales jumping 2.0 percent and retail sales rising 1.2 percent, along with improvements in the trade deficit, jobs, and the service sector. There were also solid upward revisions in prior months which now have encouraged economists to raise second quarter GDP estimates to 1.9 percent (from 1.1 percent).
Greek debt negotiations have been vacillating between encouraging and discouraging causing choppiness in the markets this past week. A big gain in the markets occurred on Wednesday when Germany announced it was making progress toward a settlement with Greece, only to be dashed when IMF negotiators left the discussion table citing a broad intransigent difference between the negotiating parties. As of Friday, it appears a certainty that Greece will default at the end of this month. To add to the uncertainty, the World Bank reduces it 2015 global growth forecast to 2.8 percent (down from 3.0 percent). This adjustment reflects the slowdown in emerging markets and softer U.S. output. Moderate growth in Europe and Japan has been offset by contractions in Brazil, Russia, and Turkey. Add to this the slowing growth in China (the second largest economy), and emerging markets are facing a dangerous mix of headwinds.
The bottom line: while the second quarter is improving, it is not as robust as hoped. The Fed is not likely to change interest rates next week, but the consensus is for a rate hike in September. The markets will be affected daily by the constantly changing news on the Greek debt crisis.
The focus next week in the U.S. will be the Federal Reserve’s FOMC meeting, its updated forecasts, and the press conference with Chairperson Janet Yellen. Manufacturing will also be in focus with the Empire State and industrial production (Monday) and Philly Fed (Thursday). The housing market index (Monday), and housing starts & permits (Tuesday) will provide hard data on the housing sector. Globally the focus will be on the U.S. FOMC. In addition, the focus will be on the following: UK (BoE monetary policy meeting minutes, consumer price index, labor market report, retail sales); eurozone (harmonized index of consumer prices); Germany (ZEW business survey); China (nothing); and Japan (BoJ monetary policy announcement, merchandise trade).
Year-to-date the markets are up: Dow 0.4%; S&P500 1.7%; Nasdaq 6.7%.
The Markets for the past week were: DJIA up 0.3%; S&P500 up 0.1%; Nasdaq COMP down -0.3%.
Commodities (ETFs) for the past week were: Gold (GLD) up 0.88%; Silver (SLV) down -0.91%; Oil (OIH) down -1.19%; Dollar (UUP) down -1.62%; 30-year Bonds (TYX) dropped 2 basis points to 3.09%.
The VIX this past week (a measure of market sentiment and volatility) dropped to 13.78% due to an improving economy.
To see what’s on the calendar for next week, go to the Econoday calendar.
The economic calendar for next week is moderate:
- o Monday – Industrial Production, Housing Market Index, Treasury International Capital
- o Tuesday – Housing Starts
- o Wednesday – EIA Petroleum Status Report, FOMC Meeting Announcement, Fed Chair Press Conference, FOMC Forecasts
- o Thursday – Weekly Jobless Claims, Consumer Price Index, Philadelphia Fed Business Outlook Survey
- o Friday – Quadruple Witching, Fed Speak
If you’re trading options, it is suggested trading Put Credit spreads for next week at 2.0 standard deviations or greater. Expect the price of the SPX to fall within 2016 and 2174 (2 standard deviations).