EmailTwo days down and two days up -- up big. Coincidentally, the S&P 500 has risen 2.22% this week ahead of two key votes in the Greek parliament on their austerity plan and its subsequent implementation.
Two be or not two be. That is the question.
Will the gains from the last two days hold up or will they fade away over the latter part of the week, which features the initial claims and ISM Index reports? We don't have a clear answer because, frankly, we did not expect to see the market run like it has so far this week.
There are two, prevailing explanations for why the market has done as well as it has: (1) there is an underlying belief that the Greek parliament will approve the austerity measures and their subsequent implementation and (2) window dressing by fund managers at the end of the second quarter.
Two other plausible explanations include: (1) the recognition that, despite all of the headline noise, there is attractive relative value in the equity market for long-term investors and (2) budding confidence that economic data in coming months will demonstrate the economy isn't stuck between a rock and a soft place.
On the latter note, average gas prices have dropped 10% in the last seven weeks from $4.018/gallon to $3.631/gallon, according to the latest report from the EIA. Durable orders for May increased for every category but one, suggesting demand for manufacturing goods remains firm despite the reports of slowing in regional manufacturing surveys. And, today, Japan reported a 5.7% increase in industrial production for May that was the largest jump since 1953.
Two reassuring earnings reports from multinational companies FedEx (FDX) and Nike (NKE) haven't hurt matters either.
We are witnessing a second day of violent protests in Athens, but the futures market has its gas mask on and is pointing to a positive open for the cash market with the S&P futures 0.7% above fair value.
News that Bank of America (BAC) has agreed to an $8.5 bln mortgage settlement with a bevy of influential investors has provided an added measure of support, as shares of BAC are indicated nearly 4.0% higher in pre-market action.
The Pending Home Sales report for May (Briefing.com consensus -0.6%; prior -11.6%) is the headline economic release today. It will hit the wires at 10:00 a.m. ET. Once again, expectations are low here, so better-than-feared news could keep the bulls in control, assuming there aren't any negative surprises related to the austerity vote in Greece.
Separately, the Dept. of Energy will release its weekly crude inventory report at 10:30 a.m. ET while the U.S. Treasury will announce results from its $29 bln 7-year note auction at 1:00 p.m. ET.
There is a lot to consider this morning, including the official end of QE2 tomorrow.
Hopefully, the market won't be falling on any poisoned swords by the end of the week.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is the Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial please email researchsales@briefing.com.
