It was a week of thrills and chills, with enough drama to rattle bulls and bears alike. The 3-plus hour closure of NYSE trading on Wednesday suggested that we might have seen another “Flash Crash” or even something worse. But like day follows night, optimism reappeared, and the buyers stepped back into action in a big way to close out the volatile week. Friday’s lift built on Thursday’s modest rise, and when the closing bell rang on Friday, it looked like a rather dull week in terms of the numbers. The S&P 500 was essentially flat for the week, while the Dow was up 0.2% and the Nasdaq was down 0.2%.
Greece and China were the big news for the week, but somehow both of those “global shocks” turned out well. The Greek “no” vote last Sunday rattled global markets, but EU negotiators were quickly back at work in Brussels Tuesday to hammer out a solution. There is still no “official” solution in place, but it was sort of fun to see EU financial bureaucrats scrambling and actually sweating for a change. Greek banks are still closed, as is its stock market, and the latest worry is that the ATMs in Greece are out of physical cash, despite the limits of 60 euro withdrawals per day for customers.
As for China, in true “top down” management style, the government told its financial press to stop publishing and broadcasting negative articles about its stock market, while trading in many companies simply stopped. There is no better way to keep investors in a long-term “buy and hold” mentality than to just stop stocks from trading, but that is what China did this past week. Oddly enough, the strategy worked, and Chinese shares rallied into the weekend following a big, early-week slide that rattled global financial markets. Chairman Mao would probably be proud.
As for the U.S. stock market, the Thursday-Friday bounce worked great in preventing any sort of panic from taking hold. The closure and the delays we saw with the NYSE this week felt a little bit fishy, but when you think about it, maybe we are not that different from China. If you can’t “sell” then prices can’t really fall, and maybe having to think about a “sell” order for three hours might make you not want to sell. Who knows? Five years of study and litigation will blame some 25 year-old trader for it, so keep that in mind as the investigators investigate. The main thing is that a meltdown might have somehow been prevented.
Janet Yellen spoke yesterday, and she offered the usual optimism about the economy growing and all of the usual optimistic fluff. She did seem a bit dovish, though, about raising interest rates. The general consensus was one rate hike before the end of the year, but even that weighed a little bit on the stock market toward the close on Friday. She addresses Congress next week with her Humphrey-Hawkins update, so it will be interesting as to what sort of insight the Fed may currently have on the U.S. economy, as well as the recent global events that have rattled global financial markets.
Earnings season is in full swing, so next week should be quite informative. We are still reeling from the recent GDP numbers, and earnings season will likely show whether the broader economy is stronger or weaker than the GDP suggested. Talk of bad weather and seasonality were the excuses for the ugly GDP report. Thus earnings, which are spread out among all sectors, should paint a clearer picture of just how the economy performed during the second quarter. The good part about earnings is that they are not government-generated (we hope!), and they cover hundreds of companies across the economic spectrum (both global and domestic).
Greece will remain on investors’ radars over the weekend, and the buzz is that the EU basically “blinked.” The EU had become so used to bailouts and extensions, that it sort of did not know what to do after the “no” vote last weekend. It seems that some sort of deal will get done, and it will get done quickly, quietly and soon. Otherwise, the list of countries that could be the “next Greece,” like Portugal, Italy or Spain would be in the financial headlines in a blink. This could rattle global financial markets, and the last thing an EU or ECB bureaucrat wants to do is rattle global financial markets (they are all ready to go on “holiday” – and probably to Greece!).
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