Highlights of this Week’s Update:
- U.S. stock indices end flat after volatile week.
- S&P 500 off only 2.5% from 2015 high even after recent events.
- Computer glitch on the New York Stock Exchange halted trading for almost 4 hours Wednesday.
- Chinese market declines bring concerns but substantial gains for past 12 months remain.
- Greece’s future still uncertain, but progress made.
- We don’t foresee a major stock decline moving forward; possible recovery off current prices.
READ ON FOR ADDITIONAL DETAILS……………………………………………..
Last week the financial markets saw more of the see-saw action that we have been experiencing most of this year, only to end flat by Friday’s close. After a week of Greece, China, and computer “glitches” at United Airlines and the New York Stock Exchange dominating the headlines, the Dow actually ended the week up .17%, while the Standard and Poor’s 500 stock index was flat, down just .01%. (MarketWatch) Given all the negative headlines over the past week, the S&P 500 is still only down 2.5% from its 2015 high reached back on May 21st, and as of last Friday, is now up .86% for the year. (Google Finance)
Oil ended $3.69 lower, at $52.81 per barrel and gold dropped $8.65 per ounce to finish the week at $1,159.30. (CNBC)
What Happened at the New York Stock Exchange?
On Wednesday, trading on the New York Stock Exchange was suspended for almost four hours due to a computer glitch. It was determined the root cause was a configuration issue due to a software upgrade processed prior to the trading day on Wednesday. The NYSE accounts for about 20% of total trading of stocks in the U.S., according to BATS Global Markets Inc., down from about 80% a decade ago. (Wall Street Journal)
Even though trades could not be executed on the New York Stock Exchange for a period of time on Wednesday, all other U.S. outlets for stock trading were fully operational. For a simple analogy, it would be like all the cash registers going down at Wal-Mart at the same time, but you could still go to Target or any other retail outlet to complete your purchases.
What’s Happening in China?
While Greece has dominated the financial headlines, the recent decline in China’s stock market created some jitters in U.S. markets in the middle of last week. Improved sentiment in Asia played a role in steadying shares at home as the week came to a close.
China’s fast-growing economy has slowed in recent years, and government officials felt that encouraging individuals to buy stocks would be one way to help China shift from an investment-led economy to a more consumer-driven economy. Plus, it would lead debt-laden companies to a new source of financing and help them clean up their balance sheets.
With the encouragement of government officials, a bull market rally ensued that sent shares soaring. The benchmark Shanghai Composite Index rose 152% from June 30, 2014 to its June 12 peak. Interestingly, this occurred at a time of slowing economic growth in Asia’s largest economy (Bloomberg).
On June 12, shares peaked, and in just under a month, the Shanghai Composite fell 32%, still leaving the twelve month return around 120%, even after the current decline. The last two days of the week saw the benchmark index rise by 10.5%.
With the government’s prestige on the line and fears that a continued collapse in shares might destabilize an already delicate financial system, China enacted a number of measures to stem the slide. But the extraordinary measures decreed by the Chinese government may have added to the sour mood as it was seen by some as an act of desperation (Bloomberg).
Putting it all in perspective, the U.S. exported $123 billion in goods to China last year (U.S. Census). It sounds like a lot but that compares to a U.S. economy that towers over $17 trillion (U.S. Bureau of Economic Analysis). While there are a few high-profile firms that depend significantly on sales to China, overall revenues from S&P 500 companies amount to just 2% (based on most recent 10-K filings – FactSet, Compustat, Goldman Sachs Global Investment Research, Business Insider).
Greece Still Undecided:
European leaders met this weekend in a continuing effort to come to an agreement for another bailout package for Greece and to keep it in the Eurozone. The Greek Parliament must vote to approve the austerity measures put forth by the European finance ministers by this coming Wednesday, July 15 in order to continue negotiations on a new rescue plan. Despite the progress made during the weekend, Greece’s future in the European currency union still hangs in the balance.
At present, we do not foresee an extended or severe downturn for U.S. stocks moving forward. The recent decline has been limited, and once some of the current uncertainties are lifted (Greece, etc.), we would expect stocks to move higher once again. Recent stock weakness could be providing a short term buying opportunity moving forward. Earnings season is in full swing, and attention should be focused back on U.S. corporate profits in the coming weeks. We could see continued volatility for the second half of the year and more of the same back and forth movement for the stock indices in general. We will continue our focus on individual stock issues for the majority of our overall equity positions for all risk levels. We will keep you posted.
We wish you all a great week ahead, and don’t hesitate to call if you ever have any questions or concerns.
We appreciate the privilege to be of service.
Your TEAM at F.I.G. Financial Advisory Services, Inc.
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1 The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
3 The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
5 New York Mercantile Exchange front-month contract; Prices can and do vary; past performance does not guarantee future results.
6 London Bullion Market Association; gold fixing pricing at 3 p.m. London time; Prices can and do vary; past performance does not guarantee future results.