EmailTrue to its form this year, the equity market managed to bounce back from larger losses on Monday. Its rebound effort was stopped short of positive territory, however, as the S&P 500 ended the day with a negligible loss on very light volume.
The indication this morning is that the cash market will again be treading water when trading begins.
Despite better-than-expected earnings results from Dow component Coca-Cola (KO), the S&P futures are 0.3% below fair value.
The lack of buying conviction is being attributed to a sense of reserve ahead of Fed Chairman Bernanke's testimony in front of the Senate Budget Committee at 10:00 a.m. ET, as well as to the same old, same old with Greece -- which is to say there is still a lot of talk and no definitive resolution to the bailout agreement.
We dare say that apathy is setting in with the same headlines being heard day in and day out. That is, the Greece issue remains unsolved, overall earnings results are pointing to decelerating earnings momentum, and the equity market appears ripe for consolidation.
Apathy, though, is not the same as complacency. Notwithstanding the collapse in the VIX Index, we think participants remain cognizant of the risks involved with the eurozone and the growing tension between Iran and the West.
That awareness is reflected more so in the light volume totals and the still-high equity risk premium than it is in declining prices for index options.
In essence, participation is down at this juncture because the equity market has come a long way in a short amount of time and there is an underlying belief that it is due for a pullback.
The default belief, though, is that the U.S. economy is exhibiting relative strength and that diplomacy will ultimately win the day in Greece and in Iran. Accordingly, concerted selling efforts have not been made and the added cost to insure recent gains has not been taken.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
