Friday the headlines blamed Greece for the modest selling to end the week… it is only appropriate that it get the credit to start the trading week on the upside. What changed? A rumored deal was struck with Greece, the EU and the IMF. The bad news… it is only a rumor. The track record for rumors concerning Greece have not panned out very well. Therefore, I am taking this with a grain of salt until there is an agreement. GREK was up 8.4% on the news today, FYI. A resolution to the issues facing Greece and the EU would be a blessing from my view as it would put the focus elsewhere and free up part of the worries hanging over the market. Uncertainty, as we know, is one of the biggest headaches for the markets. Certainty, good or bad, leads to progress. I am for progress, resolve it and move forward, enough said.
The broad markets continue to show promise despite the hike in interest rates on the horizon from the Fed. I have fallen in love with the fact the Fed has pulled a magic rabbit out of it’s hat to convince investors everything is okay! It is going to be beautiful until reality hits going forward. The ten-year treasury captured 10 basis points in yield today pushing the bond back to the 2.36% mark. The validation by the market that it believes the Fed will hike rates near term. The bond market is pricing in the hike in advance. TBT was up 4% on the day as a result of the move in yield.
I know that facts only confuse investors relative to the rumors and expectations, but we still have to take them into account relative to what we believe going forward. GDP shrank to 0.7% growth in the first quarter. CEO’s are scaling back their expectations for investment, hiring and sales. Yes, unemployment is at 5.5%, but that doesn’t account for nearly 98 million individuals who have fallen from the picture based on the way the number is calculated. Leaders are now calling for a 2.5% GDP growth for 2015… we need plenty of work to achieve that projection. The numbers are still flat to weak across the board economically and yet optimism is high… at some point reality will have to meet expectations or the valuation assigned to stocks will have to adjust to equal reality.
The rotation remains in place with money moving into financials, technology, healthcare and retail as the leading sectors currently. The energy sector gained 1.2% on the day as belief is filtering back from the Fed comments about the economy, and that shows speculation that demand will rise with the projected growth (1.9% GDP estimates FYI). I still do not believe in the hike in crude prices near term, but the bounce in the oversold stocks is valid as a short term opportunity due to the speculation.
Normal reaction in the markets to the proposed rumor of a settlement with Greece. Nice moves by the financials to recover, volatility to decline to the previous lows, Europe jumped 2.3% and NASDAQ hit another new high. All is well in the world of finance. This dance isn’t over until the fat lady sings and I have not heard that yet. There are rumors she is warming up her vocal cords, but not an opera as of yet. Don’t assume, manage the risk and manage your money.