A Strong Market Open As Growth Fears Abate

market strength06/21/11: In the markets, as in life, there are no guarantees but everyone is entitled to their opinion. Here’s my opinion on the financial markets today.

The Nitty Gritty Details:

Yesterday afternoon’s optimism that a solution for Greece short of default would be found is carrying over into this morning’s trading as U.S. stocks opened about a half percent higher.  The gain set up a possible fourth straight positive session for the S&P 500.  In addition to the Greece headlines, today’s start of the Federal Reserve Open Market Committee’s (FOMC’s) two-day policy meeting may influence trading as there is little noteworthy economic or earnings news.  European markets were higher in mid-day trading, led by banks on optimism surrounding a Greece deal.  Key Asian markets followed the U.S. lead, closing solidly higher including more than 1% bounces in Japan and Hong Kong.  Commodities are broadly higher as global growth fears abate amid a weaker dollar, with crude, grains and livestock among the biggest gainers in early trading.

Looking back at Monday, the choppy trading session followed the continued back and forth on the Greece situation in the absence of key U.S. data.  After early weakness, buyers stepped in to push the major averages higher as the latest news out of Europe suggested a deal to kick the can further down the road would likely come together as opposed to some sort of “soft”default.  Nine of ten equity sectors finished higher on the day, led by Health Care and Consumer Discretionary, while only Financials (-0.1%) ended in the red.  Analyst estimate cuts and Greek debt concerns weighed on bank stocks, as did losses for a major bank holding company after announcing a pending acquisition of $3 billion.  Commodities were all over the place, with soft agriculture commodities and livestock solidly higher, oil and gas slightly higher and base metals and natural gas lower.

Around our financial planning services firm here in Birmingham, AL, we were discussing four items that we thought would be of particular interest to our readers:

The Markets Broken Down:

1. The FOMC meets tomorrow. Fed funds futures markets are not pricing in the first rate hike until the September 2012 FOMC meeting.  QE2 is expected to end as scheduled on June 30th, without QE3, but the Fed will continue to maintain the size of its balance sheet through principal reinvestment of agency securities.

2. Treasury yields have stabilized after touching their low levels of the year late last week. Recently, Treasuries have been taking their cue from developments out of the Greek debt crisis.  Prime Minister Papandreou faces a confidence vote today.  As a condition of receiving the next installment of the 110 billion euro rescue package, Greece must show progress on budget cuts.  Greece 5-year CDS has declined over the past few days, but remains the highest of any nation at +1900 basis points.

3. Investment-grade corporate and high-yield spreads widened by 2 and 20 bps respectively last week on the decline in Treasury yields. High-yield spreads are at their widest levels of the year, yet the asset class has outperformed the Barclays Aggregate Index year-to-date by 100 basis points.  The coupon advantage has been a powerful force in driving returns.

4. Weekly retail sales continue to soften. Weekly retail sales fell 0.7% week-over-week in the week ending June 18th, the second consecutive losing week for retail sales, and the sixth in the past eight weeks dating back to Easter.  Sales were up just 2.2% on a year-over-year basis, the slowest year-over-year reading since January 2011.  The recent weakness in retail sales prompted the trade group that collects this data, the International Council of Shopping Centers, to lower its forecasts for year-over-year June same-store sales from 3-4% to 2-3%.  The June same-store sales data will be reported on July 7th.

As always, email me here with your questions or comments.  I love to hear from you and thoroughly enjoy the “intellectual debate” with our clients and friends that these opinions generate.


Greg Powell, CIMA
Wealth Consultant

Note: The opinions voiced in this material are for general information and are not intended to be specific advice. Any indices such as the S & P 500 can’t be invested into directly. Past performance is no assurance of a future result.

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