Week of drama: Greece, the Fed, FedEx, Oracle

The Greek election result looks to ignite a global rally, with the Dow opening perhaps 100 points higher. The Federal Reserve meets for 2 days. The Supreme Court may issue its health care reform decision.

By Charley Blaine Jun 15, 2012 9:37PM
Charley BlaineUpdated: 9:12 p.m. ET.

This is a week that could prove to be one of the year's turning points. It began Sunday with a Greek parliamentary election that saw the pro-eurozone New Democracy party win a plurality of the vote. That could keep Greece in the eurozone and prevent a global financial crisis for now.

The euro moved higher against the dollar in trading late Sunday, and futures trading suggests the Dow Jones industrials ($INDU) may see a 100-point gain at Monday's open.

Meanwhile, there's an important Federal Reserve meeting that many investors hope will result in a commitment to another round of stimulus.

Housing comes into play with reports on starts and existing-home sales in May, not to mention important earnings reports due from FedEx (FDX) and Oracle (ORCL). The Supreme Court may issue its decision on the nation's health care reform.

And all this comes after a topsy-turvy week that saw the Dow gain 100 points or more on three of five days, including a 115-point gain on Friday. The blue chips also fell 143 points on Monday and 77 points on Wednesday.

Article continues below.
The major averages enjoyed their second straight week of gains and best two-week performances since December. 

 The Dow ended up 1.7% for the week. The Standard & Poor's 500 Index ($INX) was up 1.3% for the week, while the Nasdaq Composite Index ($COMPX) added 0.5%.

And one gets the sense that the major averages may have bottomed from the swoon that began in April. The S&P 500 is up 6% since its intraday low of 1,266.74 on June 4.; the Dow is up 6.4%.
 

Is a conservative government good for Greece?

That bit of optimism assumed the conservative New Democracy Party would be able to form a new government in a coalition with the Socialist Pasok Party after Sunday's elections. They have three days to get the job done.

 

That's a big if. Pasok says it won't participate unless the leftist Syriza Party in the new government. Alexis Tsipras, the leader of Syriza, has said his party won't be part of a coalition.

 

If New Democracy can't form a government, Syriza would have three days to try. After that comes Pasok. After that would come yet another election.

 

New Democracy wants to Greece to stay in the eurozone and will put up with some form of austerity, believing it will make Greece stronger in the long run.The expectation is that the terms of bailout deals in place now will be renegotiated so that Greece, whose unemployment rate was 22.6% in the first quarter, can grow out of what really is a depression.

 

The Greek government is in such trouble there are fears the government will run out of cash. Servicing loans made to keep Greece afloat and prevent a complete collapse of its banking system may be difficult, if not impossible.

 

The Syriza party wants to renegotiate the terms of its austerity deal with the eurozone, the European Central Bank and the International Monetary Fund because the austerity deal is crippling the Greek economy. If a new deal can't be crafted, its leaders would probably junk the euro.

 

In the week leading up to Greece's second election in a month, Greeks had pulled money out of their banks at a rate of $1 billion a day because they feared abandoning the euro would mean a 50% decline in purchasing power.

 

There was growing confidence New Democracy would come out ahead. One indicator: Greece's benchmark stock index, The Athens Index COMPOS, rose 13.7% to 560.26.

 

If New Democracy had lost, the fear was that Greece's woes would immediately slam Spain, Italy and Portugal, and generate a recession across Europe that would hurt even mighty Germany.

 

And then it would spread around the world.

Markets for the week



6/15/2012

6/8/2012

% chg.

YTD chg.
Dow Industrials

12,767.17

12,554.20

1.70%

4.50%
S&P 500

1,342.84

1,325.66

1.30%

6.78%
Nasdaq 

2,872.80

2,858.42

0.50%

10.27%
Russell 2000

771.32

769.19

0.28%

4.10%
Crude oil 

$84.03

$84.10

-0.08%

-14.98%
(per barrel)

0.00

0.00

0.00%

0.00%
U.S. Dollar Index 

81.61

82.56

-1.16%

1.34%
10-yr. Treasury

1.59%

1.64%

-3.05%

-15.18%
Gold

$1,628.10

1,591.40

2.31%

3.91%

Will the Fed deliver?
The Federal Reserve has a big role to play in markets with its two-day meeting that starts Tuesday.

 

What many traders want is a signal that the Fed will loosen credit even further soon because of a slowing U.S. economy. It could do this with more asset purchases of Treasury securities and maybe an extension of what's known as Operation Twist. The operation involves selling short-term securities and buying longer-term issues. But the Fed's supply of securities to sell is shrinking.

The Fed has so far said it doesn't want to make a move until it has a really good reason. A very bad sell-off in Europe might well qualify. Slowing job growth would not. The market has reacted by selling whenever the Fed hasn't made a move. That's possible in the latter end of the week.

Elsewhere in the economy . . .
This is a big week for economic reports, particularly reports on housing. Here's a rundown.

National Association of Home Builders Housing Market Index, due Monday. This is a measure of builder confidence both in the short-term and long-term.

Housing starts and building permits for May, due Tuesday from the Commerce Department. Starts may dip from April, if only because building permits in April fell. Watch the permits.

Jobless claims, due Thursday from the Labor Department. Look for little change, which means about 380,000 claims. That means employers aren't hiring much, but they're not laying off much either.

Existing-home sales, due Thursday from the National Association of Realtors. Look for a small decline, Nomura Securities analysts say after a decline in pending home sales in April.

Philadelphia Fed Survey, due Thursday from the Federal Reserve Bank of Philadelphia. This index, which measures manufacturing activity in the bank's service area, fell in May. It may rise a little but still be negative. Blame Europe.

Leading Economic Indicators for May, due Friday from the Conference Board. This index should be flat with lower jobless claims and rising building permits giving some support. But lower levels of consumer confidence and a decline in the average work week weighing on the index.

The earnings: FedEx and Oracle are the keys
This is the last important week of earnings for the quarter.

Two reports are important.

FedEx reports on Tuesday. This is a leading-indicator stock because if shipments are rising, so is the economy. Shares peaked at $96.98 in February and are off 9.6% since. But like the major averages, it has bounced higher since early June. Listen to the company's description about business to and from the United States and Asia and business in Europe.

Analysts are expecting $1.92 in earnings, up from $1.75 a year ago, with revenue up 5.5% to $11.1 billion.
 
Oracle reports after Thursday's close. The company is a good indicator of how corporate decision makers view the world. Oracle shares peaked at $30.24 on March 5 and fell 15% through May 18. They're up 7.7% since.

Also reporting this week:

Tuesday: Barnes & Noble (BKS), Discover Financial Services (DFS) and La Z Boy (LZB). What Barnes & Noble has to say about its Nook business is important.

Wednesday: Bed Bath & Beyond (BBBY), hamburger-chain Sonic (SONC) and  office-furniture maker Steelcase (SCS).

Thursday: Carmax (KMX) and ConAgra Foods (CAG)

Here comes the health care decision
The Supreme Court is supposed to rule on the constitutionality of the health care reform bill this month. There is speculation the ruling could come Monday. If not, look for June 25.

After three days of oral arguments on the case in late March, the consensus has been that the court may invalidate part or all of the law. The most likely provisions to be struck down in a limited decision: the individual mandate and a requirement that health insurers enroll people regardless of health status.

You can see how the arguments affected the health care universe in shares of hospital operators, who would be forced to struggle on how to deal with indigent patients.

It's clearer with shares of companies that provide Medicaid insurance because they would lose the chance to insure upwards of 30 million patients.

Shares of Centene (CNC), a Medicaid insurance provider, were up 21% for the year through March 28, the last day of oral arguments before the court. They're down 41% since. The decline is not entirely due to speculation on the court ruling. The company cut its full-year earnings forecast on weak results on some of its health plans. It also expects a second-quarter loss.
35Comments
Jun 16, 2012 7:44PM
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Attention fellow anxiety ridden investors re: Greece ramifications for tomorrow....

Check out the article on MSN headlined...

How shock waves will hit US if Greece drops euro

Fascinating analysis for all the forms of potential fallout and the progression it will take.

One example:  A full-blown crisis would cross the Atlantic through the dense web of contracts, loans and other financial transactions that tie European banks to those in the U.S., experts say.

Blythe, the professor at Brown, believes credit default swaps, the complex financial instruments made infamous by the 2008 financial crisis, would provide the path.

If traders think other countries will follow Greece, they'll drive up borrowing rates by selling government bonds, which also pushes up the cost of insuring their debt. That's similar to how your neighborhood insurance agent handles a teenage driver.

In the derivatives market, where credit default swaps are traded, there's a twist. When markets treat Spain like a bad credit risk, those who took out insurance on Spanish debt to protect against a default can force the banks that sold the insurance to prove they can make good on the claim.

To do that, banks cash out something else — U.S. government debt, gold, or anything easy to sell. In normal times, it's no big deal. In a crisis, it can lead to a cascade of selling, spreading trouble from one market to another.


Another problem: It's not clear how much U.S. banks have at risk to Europe through credit default swaps because regulations let banks keep that information a secret.


Ladies and gents, that last line is our biggest problem, those infamous dark pools of capital which investment banks want to maintain as such;  It should be noted that its mostly Republicans in the CONgress who back this maneuver, blocking the most effective portions of the Dodd-Frank bill from being a viable tool for enforcement.


Adjourned.


Jun 16, 2012 4:58PM
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"And one gets the sense that the major averages may have bottomed from the swoon that began in April." Excuse me? This is such an overly optimistic unfounded statement. There is the Europe turmoil (which won't be resolved by the Greek vote), there is the global economical slow down, there are the US presidential elections, how much more uncertainty do you need? Who in their right mind would be assured this spells rally of market indexes. I think indexes are lining up to retest their May bottom. Nothing here shows support for a rally, no Greek pro bailout vote, no fed stimulus... If anything those would confirm the economical problems in the system.
Jun 16, 2012 2:46PM
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Euro's will work. But if you leave it in a bank, and the country leaves the EU, they will swap your good Euro's for worthless Drachma's.  Only a complete fool would leave their cash in the bank, unless they want to have it confiscated from them.  If you are Greek, even better, to have it in Switzerland, out of reach of your government.  Let the other poor guy take the haircut. 

 

If I were in Greece, I'd probably leave.  And if I couldn't or had a business, I'd shut it down and move to another country.

 

What  moron is going to go to Greece and PAY for their entitlement state?  Let those collecting pay for it.

Jun 16, 2012 2:48PM
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Re-Tog, how much interest would you charge Greece, considering you will never see your cash again, if you lend it to them???.

 

 

Jun 16, 2012 1:24PM
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 Hey Greece! Uncle Ben just took delivery of 5 swanky new state of the art printing presses and is willing to lease one to you for a very reasonable price as long as you pay the shipping charge-- both ways. Just dial in Dollars, Euros, Yen, Drachma, Loonies whatever, This baby's software can handle them all! Along with a multi lingo manual and a Drachma back guarantee. Ink sold separately
Jun 16, 2012 3:15PM
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MG.....You answered the question......I wouldn't loan them a DIME...Guess A BS would consider that 2 nickels to rub together..?

And pretty much in agreement with the other you said.....

 

I've lost on Investments before that were somewhat risky....I think Greece has surpassed my tolerance threshold....Some I feel sorry for, others seem to be arrogant azzholes.

 

Yeah I really wonder what the new Drachmas will be worth on the World Forex.??

We will know after tomorrow, how Greece, will affect the Eurozone and World markets....?

It will start in The Pacific Rim Nations.

Jun 17, 2012 12:11AM
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Quite frankly I'm more interested in what Microsoft says on Monday and Wednesday than what the tax dodging Greek socialists do on Sunday. The Northern EU should tell the Southern EU to take a hike and France has to decide which side they're on.
Jun 16, 2012 11:26AM
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 Germany will have to kick Greece out of the EU. 80% want to stay so they are not leaving willingly.
 Merkel is just going to let Greece go down when they run of out of cash and plan for contagion containment, just like Paulson did with Lehman Bros
Jun 16, 2012 1:34PM
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Hell they have been doing end runs on their Banks taking out Billions for the past few weeks..

 

The Greek Elite/Crooks.....Don't give a shidt about their Country, nor their fellow Countrymen.

They are probably buying Gold from Turkey and probably Swiss Francs or U$Ds ?

 

The Greek Government should have probaly put Limiting Curbs on the Bank withdrawls.

The Little People and the poor are going to get stuck bad.....IMO

Jun 17, 2012 8:52AM
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Well Happy Father's to all of us that are papas or pawpaws or fathered some kids.

 

Got a US Open to watch and root on Furyk(sp).

Maybe a couple Races here and there...MIS.

Baseball....and OMG, are they still playing B-ball.?....Go Thunder. 

 

Don't think I'm gonna do much today.....Drink coffee, read a little about Greece....

I think that's what they do..

Jun 17, 2012 12:14AM
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                                                         beware of Greeks bearing votes

 

 

Jun 17, 2012 9:55PM
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Week of drama: Greece, The Fed, Fed Ex and Oracle.

 

Lifetime of failure: Republicans, Libertarians, Teabaggers and Fraud Street.

Jun 16, 2012 12:29PM
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You know the "free market" mantra is working when the top four comments are sex-related commercial spam.  I believe a vote for Romney will ensure this will continue and provide orgasmic growth to our economy.  



Jun 16, 2012 12:25PM
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 What a SHAME  our Righties cannot use Germany as a role model economy while disparaging the PIIGS. The PROBLEM is Germany is FAR to the left of the US. - so they can't very well go around touting their success. Instead they will point to boycotted Cuba as an a example of failed Socialism
 It;s as if Socialism's success  stories simply do not exist-- 
and neither does the FACT that Capitalism has led to red ink flowing throughout the Capitalist world and has FAILED, reduced to robbing Peter to pay Paul. Pathetic is what they are
Jun 16, 2012 10:54AM
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You sway your pieces always to the sunny side, but basic technical knowledge would have you know this: volume on this test is light and the volume in May was strong. This market is going down! JFL, the evolutionofdemocracy.
Jun 17, 2012 7:10PM
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Tried posting results about 4-5p edt...Wouldn't let me, just a thumbnail sketch....

Looks good for the Markets for a while, we'll see, gotta be careful what you write.....?

Some people do not like being upstaged....

Jun 17, 2012 4:40PM
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"If New Democracy loses, the fear is that Greece's woes will immediately slam Spain, Italy, Portugal and even Spain (sic)."

 

Spain, the country so nice, you have to say it twice...

Jun 17, 2012 11:48AM
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The only purpose of my bought off govt is to save as much money as possible for the upper class to facilitate discredited trickle down economics. As Ben Bernanke has stated: what is paramount in his mind is the preservation of upper class wealth
 And that is the base line from where we start. The survival of the status quo at all costs
Jun 18, 2012 2:19PM
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absolutely not.  they need to preserve the bailout money as a reserve fund to tide over all of those taxpayers over $1 million in income that get dinged in 2013 ...... gotta keep that bailout money in the family ....

Jun 18, 2012 9:31AM
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Do Republicans WANT Greece to be bailed out? I'm so confused.
;)



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