Another week of drama: Health care decision, Europe

Updated: 3:15 a.m. ET Monday

It wasn't a great week for stocks, but given the week's drama -- a Greek election, a Federal Reserve meeting and its nasty aftermath on Thursday -- it could have been worse.

Expect another week of drama -- a lot of drama -- starting perhaps as early as Monday when the Supreme Court may issue its ruling on the Healthcare Reform Act, otherwise known as Obamacare.

There are two earnings reports of importance: Nike (NKE) and Research In Motion (RIMM). The BlackBerry maker's stock price fell below $10 on Friday for the first since since 2003 as investors are signaling the company is in crisis.

And there will be important reports on the economy, personal income and housing.

Monday is shaping up as a weak day. Futures trading in the Dow Jones industrials ($INDU) and the Standard & Poor's 500 Index ($INX) are signalling U.S. stocks will open lower.

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At the same time, there was concern about how auctions of government securities in Spain and Italy will fare. European stock futures and Asian shares were lower while the euro dropped toward a two-week low.

Corn and soybean futures rallied on concern dry weather will cut supply.

A volatile week ends with a lower market.
The Supreme Court decision and the rest of the drama will come after a week in which the Dow fell 1%. The S&P 500 was off 0.7%. The Nasdaq Composite Index ($COMPX) actually finished higher, with a 0.7% gain.

It was a volatile week, especially on Thursday when the Dow fell 251 points in a delayed reaction to the Federal Reserve's decision to adjust a program to sell short-term securities and buy longer-term bonds to keep long-term rates low.

But the Fed's real message was that it is very concerned about the deteriorating economic situation in Europe and its effect on the United States. Policy makers cut their own forecasts for the next several years and conceded that they -- and everyone else -- were probably too optimistic earlier in the year when a warm winter caused a lot of economic activity that might have been delayed until spring.

The stock market slumped badly on Thursday. Many traders had been hoping the Fed would do much more than it did, even if Chairman Ben Bernanke insisted the central bank had made a substantive decision. But Bernanke did say the Fed would do much more -- presumably another big round of purchases of federal bonds -- if conditions really get scary.

But there were other issues at work: worry about a Moody's downgrade of global banks and a Goldman Sachs call to short the entire S&P 500.

There were other effects of the Fed decision.

Gold (-GC) and other commodities moved lower. Crude oil (-CL) closed the week below $80 a barrel for the first time since October, and the national  average price of gasoline fell below $3.50 a gallon for the first time since Feb. 11 and ended Friday at $3.454 a gallon. That's down 12.3% from the April peak of $3.936 a gallon and down 4.9% from a year ago.

And there was plenty of criticism: that the Fed was reckless and risks setting off a new round of inflation and that the Fed has offered too little aid to the economy in the last few years because officials are afraid to offend the Republicans in Congress.

Markets for the week
			6/22/2012			6/15/2012			% chg.			YTD chg.
Dow Industrials			12,640.78			12,767.17			-0.99%			3.46%
S&P 500			1,335.02			1,342.84			-0.58%			6.16%
Nasdaq			2,892.42			2,872.80			0.68%			11.03%
Russell 2000			775.16			771.32			0.50%			4.62%
Crude oil			$79.76			$84.03			-5.08%			-19.30%
(per barrel)			0.00			0.00			0.00%			0.00%
U.S. Dollar Index			82.44			81.97			0.58%			2.38%
10-yr. Treasury			1.67%			1.59%			5.36%			-10.64%
Gold			$1,566.90			1,628.10			-3.76%			0.01%

The health care decision is coming
The decision, assuming it comes, will be combed carefully. (The New York Times suggested it may be delayed until Wednesday or Thursday.) 

If law is overturned, it's likely to be by a 5-to-4 margin, with most Supreme Court watchers believing Justice Anthony Kennedy will be the deciding vote. (Because of that belief, he already has made the cover of Time magazine.)

The dissents will be closely examined because they may provide a roadmap on how to make the world's most expensive -- and chaotic -- health care system more efficient and accessible to more people

The betting, at least on the basis of three days of oral arguments in March, is that some or all of the law could be struck down. The big winners would be managed-care companies and medical-information companies. Hospital operators would probably be losers.

Health care stocks were the best-performing sector of the stock market in the past week. The sector has been a source of strength in a difficult quarter. The S&P 500 is off 5.2% so far this quarter. The Healthcare Select SPDR (XLV) exchange-traded fund, which tracks the health care sector of the index, is off 0.52%, third-best among the 10 S&P 500 sectors. 

But the fact is there has not been exuberant investing in health care stocks. They were up an average 10.5% for the year through March 28. They're down an average 1.1% since.

And the winners are not because of the pending decision.

Edwards Lifesciences (EW), which makes heart valves and other devices for patients with cardiac problems, is up 44% for the year and 39.1% since March. But most of the gain resulted from a June 13 recommendation for the Food and Drug Administration to approve a new valve product.

• For more on the possible outcomes of the decision, check "The Obamacare Ruling: 5 Investing Scenarios."

Europe has another big week ahead
Most of the attention on Europe will be paid to the European Summit on Thursday and Friday.

Germany, France, Italy and Spain agreed Friday that the eurozone needs to establish a $156 billion package that helps finance growth in the region.

But German Chancellor Angela Merkel resisted pressure for common eurozone bonds or a more flexible use of Europe's rescue funds. She wants more fiscal discipline among the eurozone countries, something France has been reluctant to endorse.

That probably kept Friday's stock market rally in check, and it could weigh on markets as the week rolls on. There is a big fight brewing between Merkel and the new French president, Francois Hollande. A loud, ugly fight would hurt global markets.

A warning from the central bankers
On Sunday, the Bank for International Settlements, an organization that serves as an umbrella for the world’s largest central banks, called on euro zone countries to insure bank deposits and take other measures to prevent a banking collapse so that the European debt crisis does not undermine the global economy.

In its annual report, the BIS said central banks can't cope with the euro zone crisis alone. They are nearing the limits of their resources, and it is time for policy makers to act.

"Central banks are being cornered into prolonging monetary stimulus, as governments drag their feet and adjustment is delayed," the organization said. "It would be a mistake to think that central bankers can use their balance sheets to solve every economic and financial problem."

The report warned that bank deposits were already flowing out of countries perceived as vulnerable. By May, Greek banks had already lost about a third of their foreign deposits and one-quarter of domestic deposits, and the outflow seemed to be accelerating.

Money is also flowing out of Ireland, Italy, Portugal and Spain and into banks in Germany and the Netherlands because depositors believe there's more safety, The New York Times said.

Nike and Research In Motion top the earnings reports
After Thursday's close come two important reports.

Nike is expected to cheer investors with earnings of $1.37 per share for the fiscal fourth quarter, up 10.5% from a year ago. Revenue is expected to grow 13.1% to $6.52 billion.

Here's what to watch: the order book. Nike also includes an estimate of orders for the next few months. Listen to see if Europe is affecting sales. One analyst believes the European business is still quite strong, the Portland Business Journal noted Friday. Sterne Agee's Sam Poser said in a client note that athletic footwear and apparel brands and retailers are actually growing in Western Europe.

Research In Motion is a different and sadder story. The company expects to report a loss for its fiscal first quarter. It has promised to explore strategic alternatives, which would mean a sale.

The consensus estimate is still for a penny a share in earnings, down from  $1.33 a year ago, with a 35.8% decline in revenue to $3.15 billion. And the questions at the conference call will surely be on survivability.

Also reporting next week: for-profit college operator Apollo Group (APOL) on Monday; drugstore chain Walgreen (WAG) on Tuesday; food processor General Mills (GIS) and homebuilder Lennar (LEN) on Wednesday; Family Dollar (FDO), office-furniture-mak​er Herman Miller (MLHR) and gun-maker Smith & Wesson (SWHC) on Thursday and Constellation Brands (STZ) and builder KB Home (KBH) on Friday.

The second quarter ends on Friday.

The economic reports: A last revision for GDP
Reports this past week (and in weeks before that) suggested the economy has slowed down from a quick start in the first quarter. This week's reports will probably confirm that.

There may be some cheer from housing. Nomura Securities is expecting May new-home sales to rise 4% in May to 375,000 units. That will undo some of the gloom from Thursday's existing-home sales report for May, which said sales on analyzed basis were off 1.5% from April.

Here's another bit of cheer: We're far enough along in the year that unadjusted sales (that is actual sales) were up slightly in May.

But the rest of the week may not be so cheery.

Case-Shiller Home Price Index, due Tuesday from Standard & Poor's. Look for a small year-over-year decline. But the rate of decline is slowing rapidly.

The Conference Board's Consumer Confidence Index, due Tuesday. This will probably decline. The index is closely attuned with the stock market.

Durable-goods orders, due Wednesday. Slowing European growth will depress orders.

Gross domestic product: a final revision for the first quarter, due Thursday. Analysts expect growth at an annualized 1.7%, down from 3% in the fourth quarter of 2011.

Personal income, due Friday. Look for a small gain in income and in spending.

Chicago Purchasing Managers Index, due Friday. Nomura Securities sees the index falling to 51.2 in June from May's 52.7. But a reading above 50 means the economy is still growing.

University of Michigan consumer sentiment index, due Friday. Expect a big decline thanks to the stock market's woes.