Market Digest – Week Ending 6/19
US Stocks rose for the week, and continue to bounce around in the narrow trading range they have been confined to since mid-February. Greece inched closer to default and an exit from the Eurozone, but hope remains that a solution can be reached at a summit scheduled for Monday the 22nd. Meanwhile, markets seem to be growing comfortable with either outcome. In the US, Fed minutes suggested that a rate hike remains likely this year but that the rate and pace of future hikes will be slow. Stocks and bonds rose as a result.
S&P 500: 2,110 (+0.7%)
FTSE All-World ex-US: (-0.3%)
US 10 Year Treasury Yield: 2.26% (-0.13%)
Gold: $1,200 (+1.6%)
USD/EUR: $1.134 (+1.9%)
• Monday – Consolidation seems likely in the health insurance industry. UnitedHealth was said to have made a preliminary approach to Aetna, while Anthem has been in talks with Cigna.
• Monday – Jeb Bush announced his bid for the Presidency.
• Monday – Gap announced it will close 175 mostly mall based stores, amid sagging sales.
• Tuesday – The Golden State Warriors win the NBA championship.
• Tuesday – Greek Prime Minister Alexis Tsipras accused creditors of mishandling his country’s debt crisis, and said the IMF had “criminal responsibility” for the country’s economic problems.
• Wednesday – The Fed signaled it remains on track for a rate hike in 2015 but that future rate hikes would be approached cautiously.
• Wednesday – The California labor commission ruled a driver for Uber should be considered an employee rather than a contractor, in a potential setback for the company.
• Thursday – Fitbit shares surged in an IPO which valued the company at about $4 billion.
• Friday – The Shanghai composite fell 6.4%, and is down 13% for the week, amid concerns China’s equity market has become overvalued. The index has roughly doubled in the last year.
Greek Prime Minister Alexis Tsipras’ aggressive negotiation tactics imply he is either willing to leave the Eurozone or believes the country’s debtors are very desperate to keep Greece in it. The odds still favor a short to mid-term solution being reached by month end, but only slightly. The equity and bond markets (outside of Greece anyway) have had ample time to prepare and seem less and less concerned about a Greek default. Such an outcome would cause some waves, but at this point they would likely be small ones. We keep writing about it because it is a major story in the financial news, but it is no longer a situation the average investor need be terribly concerned about, in our opinion.
As for rate hikes, the Fed seems to be moving down a bullish path. It will be healthy for short rates to move away from zero, where they have been for the duration of this bull market, but rapid moves may spook the market. We think the Fed is doing the right thing by trying to get people to focus on the rate and scope of increases, which is ultimately much more important than the timing of the first one. Rates will likely rise, but at this point we don’t see any reason to believe they will be anything but low for at least the next few years.