Equity Markets Steady in the face of Multiple Headwinds

equity marketsMonday recap:  US Equity markets recovered nicely from early morning declines, despite continued uncertainties over the end game in Greece and Oil Prices getting crushed -7% to -8% for their second largest decline of the year.   Major stock market averages closed lower by only -0.25% to -0.40%.

This has to be viewed as a “Win” given headwinds from China, Greece, turmoil in the Oil Markets, and the impending 2Q earnings season that is expected to be “OK” at best. It’s very hard to judge how much the uncertainty over Greece is “holding back” markets.

Despite the “no” vote on Sunday, Greece continues to be a Very Fluid situation.

Market Breadth also held up better than would have been expected to start the day with the adv/decl stats negative by less than 2 to 1 on the NYSE and only 3 to 2 on NASDAQ.

NASDAQ -0.35% at 4991.94 closed below 5000 for the 3rd time in the last 5 days.  Prior to this stretch NASDAQ had not closed below 5000 since May 13.

Watch NASDAQ closely!!!

It was the leader by a wide margin in the first half of 2015, but building  concern over DRAM inventory levels following the big miss from MU earnings 2 weeks ago has increasingly put technology investors back on their heels a bit going to Q2 earnings season.

Oil markets were pounded relentlessly Monday as both Brent and WTI suffered their second steepest declines this year.  Ironically, Greece is third at best on the list of worries for Oil investors.

equity marketsChina continues to attempt to halt the  decline in their growth rate, with mounting concern they will miss their +7% GDP target. (We should have such problems).

A deal with Iran that would include lifting the sanctions that have kept Iranian oil off the market. Iranian inventory is thought to be in the range of 150 to 180 Million barrels.

The US rig count increased for the second consecutive week last week.  This comes after a steady 6 months decline in the rig count as drillers adjusted to oil below the $70 to $80 range.

Oil had rebounded by 1.5% to 2% very early this morning, although has given up half those gains just after 7:00 AM.  At a minimum expect more volatility in Oil prices in the near term, likely with a bias to the downside.

Just a word or two on Greece.  I know I’m repeating myself, but it continues to be a very fluid situation.   Adding to the complexity is that mapping out the decision points and resulting paths of action is very greece rejects bailoutchallenging.  For instance, the referendum vote was not in anyone’s model until it was announced a week ago Friday.

Clearly at 2% of Eurozone GDP, the uncertainty over potential collateral damage is much more an issue than immediate global economic impact.  Greece has become a textbook example of the Wall Street Adage that the market can handle bad news, it’s uncertainty that it can’t stand.

tanderson@mndpartners.com tjanderson56@gmail.com

Twitter: @TJAnderson1

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