The Word For the Day is Patience
For the last several weeks, we’ve been writing you with updates on events taking place that will affect your money for the remainder of the year. To be certain, the market is at a critical juncture right now, and as such it’s extremely important you know about the latest news and policy developments forming that will determine the fate of stocks in the second half of 2012.
The latest on the markets, the global economic picture, and the political events that influence your money are discussed each week in my Monday Morning Market Outlook podcast. This week’s primary topic is the Greek elections, and what it means for the markets and the global economy going forward. But the elections in Greece on Sunday are just one of many big developments shaping up this week. Let’s take a look at what the smart money will be watching over the next several days.
1) The Greek vote. By now you have likely heard that the best outcome for the markets has happened in Greece, i.e., the pro-bailout, New Democracy party has been voted in, and will likely form a coalition-type parliament that doesn’t want to exit the European Union. But the question now is—where is the rally in stocks? Overnight, U.S. equity futures were up 2% after the Greek vote, but that rally fizzled. In fact, stocks in the U.S. opened to the downside Monday, as traders now realize that the fundamental problems in Greece remain. The nation is still destined for debt default, and though an immediate Lehman-like meltdown was averted due to the positive Greek election outcome, look for more Greek-based trouble to leave its mark on stocks going forward.
2) Spanish bond yields. The big worry now that a Greek meltdown has been averted is Spain, and that nation’s debt troubles. Spanish 10-year bond yields spiked above 7% today, and that’s basically the Maginot Line traders have been watching to determine if Spain will need a bailout. That country’s economy continues struggling, and most astute observers realize that Spain will be the next big debt domino to fall in the EU.
3) Economic data. On the economic front, we saw retail U.S. retail sales come in soft during May; however, the real bad spot in terms of retail sales was in Europe, with Spain and Italy seeing sales fall in the double-digit percentages. In addition to retail sales, June manufacturing data in the U.S. is at its weakest level since November, and consumer confidence now is at its lowest reading of the year.
4) The technical take. Despite the negative news backdrop, stocks in the U.S. have enjoyed two consecutive weeks of nice upside. After dipping below the 200-day moving average briefly in June, the S&P 500 Index has rallied, and now trades above its 50-day moving average. The price action in stocks is a positive sign for the markets going forward; however, keep in mind that both international and emerging market indices remain in bear market territory. If this rally is for real, it needs to start taking place in these two market segments.
5) What will the Fed do? The market is waiting for Big Ben and the Federal Reserve to announce any policy changes with regard to monetary stimulus. The Fed will let the world know what’s going to happen on Wednesday, and the real question is whether there will be some form of continued quantitative easing, either via more bond buying, or via some other method. This may be the Fed’s last chance before the presidential election to surprise the markets, and that makes this week’s Fed meeting a real one to watch.
Given the bevy of data that’s come out, and the unknowns still operating in the economy and financial markets, now is definitely the time to get your risk-management plan together. Our weekly audio podcast can help you do just that, as it provides you a front-row seat to all of the events that can affect your wealth.
Simply click here to listen to today’s show, and get prepared to deal with what could be the most important weeks of the year.
Doug Fabian, President
Fabian Wealth Strategies