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

Updated: 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.

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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.