EmailTrading volume was light yesterday, but that didn't stop the equity market from registering modest gains in a session that probably came as a surprise to many third-party observers.
Prior to Monday's open, there was a negative disposition tied to concerns about the unsettled state of Greece's fiscal situation and the lack of a solution to prevent the country from defaulting on its debt. The S&P 500 nonetheless started moving higher in early trade and held its head up throughout the session to close with a gain of 0.5%.
Since its intraday low last Thursday, the S&P 500 is up 1.6%. We'll call it the "been there, done that" trade.
Despite a growing alternative of bad choices with respect to Greece, as one respected pundit put it, participants appear to be thinking that another eleventh hour solution will be reached in a similar fashion to last year that forestalls a worst-case scenario of a debt default.
The conviction of that belief will be put to the test tonight when the Greek parliament conducts a confidence vote for the prime minister and his government at 5:00 p.m. ET.
That is just the first step in solidifying confidence in the notion that Greece will avoid a default. The next step is passing the new austerity budget in the face of mounting public protests. The third step is receiving a funding tranche from the IMF to meet impending debt payments. The fourth step involves European leaders agreeing to a second bailout package. And the fifth step is getting the rating agencies on board with the provisions of a bailout package so they don't lower the default guillotine. In brief, this ain't over yet.
For now, though, the market can be deemed to be hopeful that this will all come to pass, because that is the message embedded in the equity market's rebound effort the last few sessions. A vote of no confidence tonight, however, would presumably change that thinking.
Currently, the S&P futures are 0.7% above fair value, so the stage is set for a positive open for the cash market.
Today marks the beginning of the two-day FOMC meeting, so there should be plenty of chatter about what is happening behind closed doors at the Fed.
The Existing Home Sales report for May (Briefing.com consensus 4.79 mln; prior 5.05 mln) will simply add to that conversation. Expectations are on the low side for this particular report, so given the better mood of the market of late, an in-line number or better could keep sellers planted on the sidelines for the better part of today's session.
In other developments, Walgreens (WAG) reported better-than-expected earnings, but its stock is trading 5% lower in pre-market action after the company said it will not be part of the Express Scripts (ESRX) pharmacy provider network in 2012 due to unsuccessful contract negotiations.
Best Buy (BBY), meanwhile, announced a new $5 bln share buyback program and raised its dividend 7%. That news has shares of BBY indicated 3% higher in the pre-market.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is the Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial please email researchsales@briefing.com.
