The Markets
A week of volatility ended with the stock market little changed from the prior week. On Wednesday, the major indices responded negatively to the potential for a Greek exit from the eurozone (Grexit), the free fall of China's major markets, and a "technical glitch" on the New York Stock Exchange that temporarily shut down trading. Nevertheless, the markets rallied at the end of the week behind cautious optimism that Greece and its creditors could reach a deal, and that actions by the Chinese government could shore up markets there. All in all, the Dow and Russell 2000 actually registered slight gains over their July 2 close, while the S&P and Nasdaq almost recovered most of their early week losses.
Last Week's Headlines
- Greece's "no" vote to the austerity measures proposed by its major creditors (International Monetary Fund, European Commission, and European Central Bank) coupled with China's cascading markets sent equities tumbling early in the week. However, Greek President Alexis Tsipras outlined a proposal late Thursday that attempted to address some of the creditors' demands in return for more bailout funds. While the parties met over the weekend to hammer out a plan, news of the proposal was enough to spur equities to a rally.
- China's major markets rose, fell, and rose at a dizzying pace. Following a three-week-long losing streak, the government's intervention halted the massive sell-off and stabilized the market, at least temporarily. To spur the market, China's central bank offered to lend money to investors for equity purchases. In addition, the government essentially ordered companies and fund managers to buy stocks, while suspending the sale of stock held by "major" shareholders. The Chinese government also launched a probe into allegedly dubious short-selling schemes.
- Economic activity in the non-manufacturing sector grew in June for the 65th consecutive month, according to the ISM non-manufacturing index report. The index registered 56% in June, 0.3% higher than May. According to the index, 15 non-manufacturing industries reported growth in June, some of which include arts, entertainment and recreation, real estate, health care and social assistance, and retail trade. The 3 industries reporting contraction in June are mining, other services, and construction.
- Exports continue to lag behind imports, as the U.S. trade gap widened 2.9% to $41.87 billion in May, according to the U.S. Census Bureau and the U.S. Bureau of Economic Analysis. Excluding petroleum, exports declined 4.5% in May compared to a year earlier, while imports (net petroleum) increased 1.9% from May 2014. Soft exports are due in large part to the continued strength of the U.S. dollar.
- The Labor Department's Job Openings and Labor Turnover Survey (JOLTS) for May shows the number of job openings was at 5.36 million compared to 5.33 million in April--the highest number of openings since the series began in December 2000. The number of May hires was slightly down compared to April (5.0 million/5.03 million), while total separations (quits, layoffs, and discharges) decreased from April's total (4.74 million/4.89 million).
- The national average retail regular gasoline price decreased to $2.793 per gallon on July 6, 2015, $0.008 under last week's price and $0.885 below a year ago, according to the Energy Information Administration weekly status report. U.S. crude oil imports averaged over 7.3 million barrels per day last week, down 197,000 barrels per day from the previous week, while commercial crude oil inventories and total motor gasoline inventories increased.
- Minutes of the Federal Open Market Committee (FOMC) meeting from June gave no clear indication when interest rates would be raised. According to the meeting minutes, "The information reviewed for the June 16-17 meeting suggested that real gross domestic product (GDP) was increasing moderately in the second quarter after edging down in the first quarter. Labor market conditions improved somewhat further in recent months. Consumer price inflation continued to run below the FOMC's longer-run objective of 2% and was restrained significantly by earlier declines in energy prices and decreases in prices of non-energy imports." The committee concluded that, although it had seen some progress, "the conditions warranting an increase in the target range for the federal funds rate had not yet been met," and that "additional information on the outlook, particularly for labor markets and inflation, would be necessary before deciding to implement such an increase." The escalated Greek debt crisis coupled with China's stock market tailspin would seem to lend further credence to the committee's hesitation to raise interest rates.
- Unemployment data has generally been favorable this year, but last week saw an up-tick in both initial insured claims and continuing claims. In the week ended July 4, the advance figure for seasonally adjusted initial claims was 297,000, an increase of 15,000 from the previous week's revised level of 282,000, according to the Department of Labor. The advance number for seasonally adjusted insured unemployment (continuing claims) during the week ended June 27 was 2,334,000, an increase of 69,000 from the previous week's revised level.
Eye on the Week Ahead
The week should provide more intrigue in the Greek drama as the sides continue to negotiate a deal. Will the moves by the Chinese government hold fast in reversing the downward trend, or will more sell-offs prompt more intervention? The week kicks off with the Treasury budget, followed by reports on retail sales, import and export prices, the housing market update. The Consumer Price Index closes the week.
Data sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.
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