Friday was a “quadruple witching” day, when multiple options and futures contracts expired, and it may have played into the lackluster and nervous performance for the stock market. Worries about Greece were also front and center, and there was even talk that Greek banks might not open on Monday. Massive amounts of cash withdrawals by Greeks from banks further raised concerns, but we all know that the European Central Bank (ECB) usually comes to the rescue at the very last second. We will see what happens on Monday, but worry levels definitely weighed on the stock market as it closed out Friday in the red.
It was not all that bad of a week, though, and the major indices even closed out positive for the week, with the Dow up 0.6%, the Nasdaq up 1.3% and the S&P 500 up 0.8%. The post-Fed rally on Thursday was impressive, and it helped the Nasdaq hit an all-time high. Bulls were impressed to see the Nasdaq hit the all-time high that we last saw in March of 2000, and while that was impressive, it did have some bulls thinking that we might be hovering around a “peak” in stock prices. Bulls were hoping that the Thursday rally would set us up for new highs in the Dow and the S&P 500 as well, but Friday’s fade prevented that move.
The S&P 500 closed at 2,109, which once again puts it just slightly above its 50-day moving average of 2,100. That 50-day moving average is the “monkey on the back” of the 2015 stock market, as we keep seeing it come into play time after time. The S&P 500 will dip below it, but it will somehow bounce back above it. Every time it bounces back, bulls think a resounding upside breakout is at hand, but time and time again, we see a drift back to the downside. It is frustrating to say the least, and Friday’s slide played right into that pattern that we have seen for most of the year.
What was surprising about this week was the post-Fed strength we saw in the stock market. Janet Yellen and the crew made it very clear that rate hikes from the Fed are on the way. The buzz this week was that it might not be only one rate hike before the end of the year, but possibly two. The Thursday rally showed that investors were not all that worried, though, and we give a “thumbs up” to the Fed for paving the way for rate hikes that many investors think are needed. Rates have been at or near zero for six years, and the conventional wisdom is that the Fed needs to “normalize” rates.
Normalizing rates is tough, though, because the stock market has not had to deal with rising rates for so very long. The yield on the10-year U.S. Treasury has edged back up to nearly 2.3%, and while that is still quite low historically, it is on an upswing just the same. Rising longer-term rates will ultimately affect mortgage rates, corporate underwriting rates, and consumer loans, which could have big effects on the broader economy. This might explain the stock market’s mixed finish to a tough week, even though the major indices were higher.
The Greek Drama is the wild card right now, though, and with no “official” fix in place, it makes for a high stakes Monday. The thought that Greek banks might not be able to open on Monday is a big concern, and it puts a lot of pressure on the ECB to “do something” quickly. The usual protocol is for a last-minute bailout or agreement, but the ECB is dealing with the new, leftist Greek government that has dug its heels in and is tired of the many “austerity” programs that weigh heavily on its population. This will make for an interesting Monday in Europe.
Other potential “global shocks” include the Chinese stock market that has been under pressure lately. It has had quite a run this past year, but the recent downturn and volatility it has experienced is cause for concern. We saw the Nasdaq hit an all-time high this week, and the Dow and S&P 500 are not far behind, but potential global shocks are still waiting in the wings. Again, next week should offer some clues as to where we might be headed, so be ready for some “wild cards” that might be thrown our way.
Janet Yellen and the Fed did a great job this past week in calmly making the case for higher rates, and the Fed deserves a lot of credit for not rattling global financial markets. The problem, however, is what happens when the Fed actually STARTS raising interest rates. We have said before that Alan Greenspan warned of a market “taper tantrum” taking place once the Fed begins its rate hikes, so the hope among the bullish camp is that this will not occur until 2016. The Fed has promised to remain “data driven,” so we will have to wait and see just what kind of “data” we see in the weeks ahead.
We did have the Nasdaq hit that all-time high this week, though, and that had the bulls smiling big. Bulls are hoping that this upside enthusiasm continues into next week. That said, the Gorilla wishes each and all a relaxing June weekend! We will be back in action on Monday, in a week that promises to be telling as to where the stock market might be heading. Again, have a great weekend!
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