Stocks opened higher but closed lower last week after the latest proposal from Greece was rejected and a slew of historic Supreme Court rulings were announced. Stocks opened higher after Greece announced a new proposal to appease their creditors. The deal was quickly rejected and stocks turned lower after Germany and other European countries said the deal was not satisfactory. The two big standout losers last week were the Utilities ($XLU) and the Transports ($IYT). Both of these important areas of the market are in correction territory (defined by a decline of 10% to 19.9% from a recent high) sliced below key levels of support last week. This negative action bodes poorly for both Main Street and Wall Street and it will be very interesting to see how the incoming "data" is affected over the next few months. At this point, we do not expect the Fed to raise rates until the "data" improves markedly which means the easy money trade remains alive and well for now.
Monday-Wednesday's Action: Stocks Rally On Greek Proposal
Stocks rallied nicely on Monday after Greece submitted a new proposal to its creditors. Germany's Finance Minister Wolfgang Schaeuble said he does not see anything new in the proposal which quickly curbed the market's enthusiasm. Meanwhile, economic data and M&A activity continued to help markets. Existing home sales rose +5.1% in May to 5.35 million beating estimates for a gain of 5.26 million. That was the highest monthly reading for existing homes sold since November 2009 when 5.44 million were sold. First-time home buyers accounted for 32% of all sales in May, up from 30% in April, representing the largest contribution since September 2012. Lots of buyers are rushing to lock in historically low mortgages rates before rates move higher. Shares of Cigna ($CI) soared after the company rejected Anthem's ($ANTM) new offer to acquire the company for $184/share. Separately, Aetna's ($AET) made a bid to acquire Humana ($HUM) for an undisclosed amount.
Stocks edged higher on Tuesday but spent most of the session near the flat line as investors digested the latest round of economic data and continued to wait for a deal from Greece. Durable goods slid -1.8% in May which missed estimates for a decline of -0.5%. The biggest drag on the reading came from a decline in aircraft orders. Shares of Boeing ($BA) fell after the company reported a big drop in sales. The FHFA Housing Price Index rose 0.3%, missing estimates for a gain of 0.4%. A separate report showed that new home sales rose 2.2% in May and hit their highest level since February 2008. New home sales rose to 546k from an upwardly revised 534k and beat estimates for 525k. The PMI manufacturing index came in at 53.4, missing estimates for 54.2. The Richmond Fed manufacturing index came in at 6 which was a decent reading and beat the prior reading of 1.
Stocks fell hard on Wednesday after tensions rose in Europe regarding a Greek deal and Q1 2015 U.S. GDP was revised higher. The proposal Greece submitted was rejected and they are back to the drawing board which disappointed many investors. In the U.S., Q1 2015 GDP was revised to negative -0.2%, matching estimates, and higher from the last reading of -0.7%. The revision matches the Fed's script and raises concerns of a Fed rate hike in September. The bulls are not happy to see transports plunge over -2% as they continue to form a major top with a bearish base-under-base pattern.
Thursday-Friday’s Action: Stocks Fall As Greek Drama Continues
Stocks fell on Thursday after the latest Eurogroup meeting was suspended to give the Greek delegation time to submit a better proposal to creditors. The big winners on Wall Street came from health care and hospital stocks which soared after the Supreme Court upheld federal subsidies for the Affordable Care Act (a.k.a Obamacare). Hospital stocks such as Tenet Healthcare Corp. ($THC), HCA Holdings, Inc. ($HCA), and Universal Health Services Inc. ($UHS) all soared 7-12% immediately after the news broke. Shares of Humana ($HUM) soared after Bloomberg reported that Aetna wants to acquire HUM. Weekly jobless claims rose to 271k, beating estimates for 273k. Stocks opened higher on Friday after ISIS committed three separate terrorist attacks in France, Tunis, and Kuwait. Overseas, Chinese stocks plunged on Friday, with the Shanghai Composite plunging over -7%, its largest one-day loss in five months as it gets closer to bear market territory (defined by a decline of 20% or greater from a recent high).
Market Outlook: The Central Bank Put Is Alive And Well
Remember, in bull markets surprises happen to the upside. This has been our primary thesis since the end of 2012. We would be remiss not to note that this very strong bull market is aging (celebrated its 6th anniversary in March 2015) and the last two major bull markets ended shortly after their 5th anniversary; 1994-2000 & 2002-Oct 2007). To be clear, the central bank put is very strong and until material damage occurs, the stock market deserves the longer-term bullish benefit of the doubt. As always, keep your losses small and never argue with the tape. If you want exact entry and exit points in leading stocks, or access more of Adam's commentary/thoughts on the market. Consider joining SarhanCapital.com.
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