Trading expected to increase as earning season starts

BY  | FROM  | 2015-07-13 09:04

It was euphoria on the street, as laughter, smiles, and a feeling of accomplishment invaded downtown New York.
Unless you were there (or there for one of the other 205 such events, which started in 1886), there are not enough adjectives to describe it or the feeling it brings.  The street in this case is Broadway, not Wall Street (which does intersect downtown), and the event was the 206th New York City Ticker-Tape parade up the “Canyon of Heroes” for the Woman’s World Cup winning U.S. Soccer Team.  Not even the market or Fed Chair Yellen’s speech, which took place at noon (the parade started at 11 a.m.), could get in the way of the addictive event. 
I’m speaking from experience here, with my first parade being for John Glenn when he returned from space, on March 1, 1962 (my father’s office was on Broadway, across from City Hall).  This is a tradition I’ve passed on to my son in 2009 with the last New York Yankee’s championship parade (which was my fifth Yankee’s parade). 
However, more relevant to this note (but not to most New Yorkers) is that the euphoria spread onto Wall Street, as the market posted its own parade via a Greek and Chinese holiday, turning the Street’s mood totally around, as the two-day turnaround after Wednesday’s 1.67% decline, amounted to a 1.46% gain.  The result was happy faces on traders, not just fans, and a feeling that the global problems were behind us.  And that now we could face, trade and hopefully score as we focus on problems in the U.S. – which if they don’t come over the weekend (from abroad) could come Tuesday, when big-banks starts to report. Last Sunday, Greek voters overwhelmingly rejected the credit conditions for the bailout by a 61% rejection vote.  The vote hardened Greece’s position, but things changed as the week went on, and the potential for continued bank closing changed to the potential for a Greek Bank collapse.  Late Thursday night, Greece submitted a plan, which appeared to come close to what creditors were asking for, which was also more than they (the creditors) were looking for prior to the expiration of the prior deal—which Greek voters had rejected.  The bottom line at this point appeared to be that a deal was close, with global markets rallying on the news. China limited major shareholders from selling their holdings (of 5%) for six months, as many issues were halted from trading, and limits were placed on who could trade, with the government buying stock to support prices.  Chinese markets remained volatile with large swings.  The Shanghai was off its June 12, 2015, high by 25.1%, but it still up 19.9% year-to-date.  Of greater concern was the negative economic impact on China’s growth, demand and services, which would affect global economies and markets. The market lived without the New York Stock Exchange (NYSE) on Wednesday, when a computer glitch closed the exchange at 11:32 a.m. until 3:10 p.m. that day.  The takeaway was that market efficiently went on, as trading moved to other venues, with little impact.  The Wall Street Journal’s website went down, as investors flocked to the site for news and quotes.  Unrelated, airline issue United Continental (UAL) was forced to shut down its flights that morning due to a computer problem.
In economic data, the June PMI Service report came in lower (54.8) than expected (55.1), but it was well in the expansion area, as the ISM Non-Manufacturing Index came in as expected (56.0).  The May Wholesale Inventories report came in stronger than expected (with a 0.8% increase, when a much lower 0.3% gain was expected).  The highlight (at least for economic reports) was the release on Wednesday of the last Fed meeting (June 16-17, 2015), which showed concern over Greece, China, and the slow pace of consumer spending.  The Fed’s overall view was that the economy was moving toward the point where they could raise rates, but they gave no indications of when that would be.  The Street is still looking for September, with the potential for December. Fed Chair Yellen’s Friday speech confirmed the Fed’s intention to increase this year, but gave no indication of when. 
In M&A, the USD 34.1 billion Aetna (AET; off 9.5% for the week) and Humana (HUM) merger, along with the on-again talks between Anthem (ANTM; off 2.3% for the week) and Cigna (CI; off 3.2% for the week), spoke to the consolidation within the field.  Additional consolidation was expected.  Generic drug issue Horizan Pharama (HZNP) made a hostile offer for pharmaceutical issue Depomed (DEPO; up 36.7% for the week).
On an issue level, software maker Microsoft (MSFT; up 0.5% for the week) said it would lay off 7,800 workers and take a USD 7.6 billion write-off on its Nokia operations (purchased in 2013). iPhone maker Apple (AAPL) stopped its recent declines, at least on Friday, when it gained 2.7%, as it ended the week at USD 123.28, off 2.3%, and off 7.3% for its recent February 23, 2015, closing high of USD 133.00.
For the week, the market posted a slight decline due to the two-day rebound, with the decline being a “that’s O.K.” 0.01% fall, as the market closed at 2,076.62.  It was the third week of declines, with last week being off 1.18% and the prior week down 0.40%.  The decline was seen as minor, especially given that the index was off 2.16% for the week-to-date on Wednesday.  The market managed to stay in the black year-to-date with a 0.86% gain, as it remains 2.54% off its closing high (2,130.82 on March 21, 2015). Breadth turned positive thanks to Friday’s gains, after posting two negative weeks. 
For the week 255 issues gained, which was up from last week’s 113, and the prior week’s 190. There were 246 issues posting a decline for the week, down from last week’s 387 and the prior week’s 310 issues.  No issue gained 10% or more (one did the prior week), while 11 issues were up at least 5% (four the previous week).  Two issues fell at least 10% (four did so the week before), with one of them because of a special dividend payment and merger (Kraft Heinz), with 30 falling at least 5% (22 did the week before). 
Six of the ten sectors posted declines, down from nine last week and up from the seven decliners the week before that, as four gained.  Consumer Staples did the best, adding 2.02%, and now up 1.06% year-to-date. Utilities, which did the best last week was next, rebounded another 1.67% for the week after last week’s 1.14% gain.  The sector, however, remains down 9.11% year-to-date—the worst of any group. Materials did the worst, off 1.64%, as demand was seen as being hurt by China’s economic situation.  Energy declined 1.47% and is off 8.24% year-to-date, as oil continued to decline.  Health care posted a 0.51% gain the week after declining 1.41% last week; the sector remains up 9.88% year-to-date, the best of any group. Trading volume increased 4%, its fourth consecutive week of increased trading, as trading was 10% higher than the one-year average.  Trading was expected to increase, as earnings season starts next week. Measurable volatility (the high-over-low price variance) ticked down to 1.94% from the last week’s 2.06%, which was up from the prior week’s 1.65%; the one-year average of 2.29%. The VIX moved up on both Chinese and Greek concerns, closing at 16.83, which was up a tick from last week’s 16.79, but much lower than the 20.05 posted on Thursday; the prior week was a comparatively low 14.02.  Interest rates were volatile again this week, again partially on a flight to safety, but moved up on Friday, as the flight-to-safety appeared to end. The U.S. 10-year Treasury yield closed up at 2.40% from last week’s 2.38% and the previous week’s 2.47% (year-end 2014 was 2.17%).  Oil continued to decline, closing at USD 52.82, which was up from last week’s USD 56.54 (and USD 55.65 the week before that).  The euro closed down at 1.1156 from last week’s 1.1080 (1.1167 the week before that). The pound was at 1.5517, down from last week’s 1.5603 (1.5748 from the previous week) and the yen (quoted in yen-to-U.S. dollar, so higher is weaker) was at 122.78, which was down from the prior week’s 123.06 (compared to the 123.87 the week before that). Next week will start the bulk of the earnings, with the market starting to trade on the announcements.  Markets typically start to trade heavier during this time, and issues tend to react to related news.  Banks will start off on Tuesday with JPMorgan (JPM) and Wells Fargo (WFC); then Wednesday’s Bank of America (BAC) and investment management firm BlackRock (BLK); then Thursday’s Citigroup (C) and Morgan Stanley (MS).  Also of interest will be Johnson & Johnson (JNJ; Tuesday), Intel (INTC; after the close Wednesday), Google (GOOG; after the close Thursday), and General Electric (GE; Friday).  Economic highlights will include Imports and Exports reports (Tuesday) and Housing (Wednesday and Friday). 
S&P Dow Jones Indices added Advance Auto Parts (AAP) to the S&P 500, replacing Family Dollar Store (FDO), which was acquired by Dollar Tree (DLTR).

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