State of the Stock Market Analysis for the Week Ending July 5th, 2015 (Bulls Wanted a Happy 4th of July Weekend 07-05-2015)
As we headed into the long Fourth of July Weekend, bulls were hoping for a strong Thursday performance that would have sent us into the weekend with fireworks to the upside, but that was not to be the case. A lackluster jobs report, a falling Chinese stock market and no resolution in Greece combined to keep buyers on the sidelines Thursday, and stocks closed slightly lower. It was not all that bad of a week, though, as the major indices booked weekly losses of 1.2% for the Dow and the S&P 500 and a 1.4% weekly decline for the Nasdaq.
It was a tough week all around, and the Greek Drama remained front and center. Greece did not make its all-important debt payment on Tuesday, and that has set in motion a political “referendum” vote that takes place on Sunday. The “yes” vote seems likely right now, which would essentially say that the Greeks want to “extend” the current problems by accepting an EU restructuring that would keep the bailout game in play. A “no” vote would say that Greeks are tired of “austerity” programs and fiscal pressures that have plagued the Greek economy.
It is a tough vote, and it will be interesting to see how it plays out on Sunday. Greeks have seen the painful effects of years of EU and ECB power over their country, which was the reason that Greeks elected a far-left government that has dug in its heels, and has stood up to the “Powers That Be” in the EU. The sanctions, debt restructuring, and overall pressure from the EU (particularly Germany) have wreaked havoc on the Greek economy, and its voters have said that they have had enough. Greek voters wanted change, and that is clearly what they are getting. The question now is whether this aggressive posturing can get another “thumbs up” in the Sunday vote.
The problem with voting for “change” is that change has consequences. Even if a Greek voter wanted “change,” it is a whole different story when your banks are closed, ATM machines are empty, and food on store shelves and gas at the gas stations are in short supply (or gone). Add to that scenario the cash controls that say a Greek can only withdraw 60 euros per day from an ATM, and you can see why the “yes” vote to cooperate with the EU and the ECB has gradually gained to a majority number in the polls. There has been enough “back and forth” between Greece and the IMF, the EU, and the ECB to keep global markets calm this past week.
The U.S. stock market has its own worries on its hands, and while Greece is “the word,” there are also some big forces in play domestically in the U.S. Outside of Greece and China’s recent stock market weakness, U.S. investors are worried about the Federal Reserve. Thursday’s government jobs report showed that 223,000 new jobs were created, which was slightly lower than the 225,000 number that economists had predicted. The unemployment rate fell to 5.3% versus the 5.4% that analysts had expected, but the buzz on that number was that it was the result of yet more workers throwing in the towel on even looking for jobs.
Economic bulls were hoping for a strong number that would have alleviated fears of a teetering economy, but seeing job creation come in as just expected did little to fuel investor optimism. The rough part of the jobs report, though, was that it was still “good enough” to keep a September Fed rate hike in play as a possibility. It was not a bad number, but it was not so good either. It was lukewarm, and lukewarm was not what the bulls wanted to see on Thursday. A bad number would have possibly taken the rate hike question off of the table, but it was just good enough to keep the “double hike” scenario in play before the end of the year.
It is the Fourth of July Weekend, though, and it is a great time for investors to take a break and regain their composure. Greece will do what it thinks is best for itself on Sunday, and we will adjust to whatever that decision is on Monday. Summer is supposed to be calm and quiet in the financial markets, and we are supposed to be barbecuing, relaxing and having fun, but here we are with a couple of potential “global shocks” (Greece and China) waiting in the wings for the Monday open on Wall Street. The strength and resilience we saw this past week is encouraging for the bulls, though, so we shall see what happens.
In the meantime, enjoy the long weekend with family, friends and fireworks, and try not to worry about Greece – at least until Sunday night. We might see a different sort of fireworks next week, but for this weekend we can focus on the real kind of fireworks that we see here at home in this great and ever-resilient country. That said, the Gorilla wishes each and all a Happy Fourth of July!
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