The Week In Review

6/29-7/2/15

The major averages ended an abbreviated trading week on a cautious note, which wasn't all that surprising since the weekend will feature a Sunday referendum in Greece. The S&P 500 settled just below its flat line, ending the week lower by 1.2%, while small cap stocks underperformed with the Russell 2000 losing 0.7% to end the week lower by 2.5%.

Equity indices held modest gains at the start after the Nonfarm Payrolls report for June missed estimates (223,000; Briefing.com consensus 230,000) with the wage component showing no monthly growth. The lack of wage growth was viewed as an argument in favor of the Federal Reserve delaying its first rate hike, evidenced by a surge in the Treasury market. The 10-yr note backed away from its high ahead of the close, but still ended firmly in the green with the benchmark yield slipping four basis points to 2.38%.

Despite opening on a higher note, stocks retreated from their early levels, turning negative during late morning action. Interestingly, the benchmark index slipped below its flat line after the International Monetary Fund admitted that Greece will need approximately EUR50 billion in funds over the next three years and that a 20-year grace period should take place before any repayment begins. The comments from the IMF are likely to galvanize the 'no' camp ahead of Sunday's referendum in Greece.

Six sectors ended the day in negative territory while energy (+0.4%), technology (+0.2%), telecom services (+0.3%), and utilities (+1.4%) posted gains. The utilities sector held the lead throughout the session thanks to the morning drop in Treasury yields. The rate-sensitive sector was the only group that ended the week in the green, adding 1.1% since last Friday.

For its part, the energy sector was able to end in the green even as crude oil surrendered its intraday gain, ending the pit session unchanged at $56.93/bbl. For the week, WTI crude surrendered 4.5% while the energy sector lost 1.9%.

Elsewhere among cyclical groups, the technology sector (+0.2%) struggled early on, but the group rallied into the close, lifting the benchmark index off its session low. Chipmakers led the afternoon rebound with the PHLX Semiconductor Index adding 0.5%.

There wasn't much in the way of corporate news today, but Health Net (HNT 71.57, +6.51) jumped 10.0% after agreeing to be acquired by Centene (CNC 74.44, -6.46) for roughly $78.57/share in cash and stock, which represents a 21.0% premium to Wednesday's closing price. Meanwhile, the broader health care sector (-0.3%) ended among the laggards while biotech names finished little changed with iShares Nasdaq Biotechnology ETF (IBB 370.17, +0.27) adding 0.1%.

Today's trading volume was well below average with roughly 700 million shares changing hands at the NYSE floor.

Economic data included Nonfarm Payrolls, Initial Claims, and Factory Orders:

Nonfarm payrolls added 223,000 jobs in June after adding a downwardly revised 254,000 (from 280,000) in May while the Briefing.com consensus expected an increase of 230,000 

Government payrolls were flat, and the entire increase in payrolls came from the private sector as private payrolls increased by 223,000 while the consensus expected an increase of 225,000 

Although the payroll data was not far from expectations, the details of the report highlight extreme weaknesses as average workweek and hourly earnings were both flat in June  

Total aggregate earnings increased a minuscule 0.1% in June, down from a 0.5% gain in May 

The unemployment rate fell to 5.3% in June from 5.5% while the consensus expected a decline to 5.4%; however, the entire decrease was due to a decline in labor force participation as opposed to employment growth

The initial claims level increased to 281,000 for the week ending June 27 from an unrevised 271,000 while the Briefing.com consensus expected an increase to 271,000 

Despite the big increase, the four-week moving average increased by only 1,000 to 275,000, leaving the overall trend near a 15-year low

Factory orders declined 1.0% in May following a downwardly revised -0.7% (from -0.4%) decline in April while the Briefing.com consensus expected a decline of 0.5% 

Durable goods orders declined 2.2% in May, which was revised down from a 1.8% decline in the advance report 

The entire decline resulted from continued weakness in the transportation sector with those orders declining 6.5% in May after falling 4.0% in April

Monday's data will be limited to the 10:00 ET release of the ISM Services Index for June.

Nasdaq Composite +5.8% YTD 

Russell 2000 +3.6% YTD 

S&P 500 +0.8% YTD 

Dow Jones Industrial Average -0.5% YTD

Week in Review: All Eyes on Greek Referendum

On Monday, global markets were shaken after Greek leaders said 'no' to the Eurogroup's cash-for-reform proposal and investors around the world in turn said 'no' to buying stocks. Just about every major market closed down at least 2.0%. The hardest-hit markets were the European bourses, which included Germany's DAX Index (-3.6%) and Spain's IBEX (-4.6%). Japan's Nikkei dropped 2.9% while China's Shanghai Composite fell 3.3% despite the People's Bank of China cutting its benchmark lending and deposit rates by 25 basis points each to 4.85% and 2.00%, respectively. In comparison, the U.S. stock market fared reasonably well, yet that doesn't mean it did well. Hit with broad-based selling pressure, the S&P 500 declined 2.1% as buyers basically wanted no part of the day's action outside a few areas of specific interest. One area was the utilities sector (-0.6%), which traded with a modest gain for most of the day before ultimately feeling the gravitational pull of the weak market. Another area was the Treasury market, which attracted safe-haven flows. The 10-yr note surged more than a point and saw its yield drop 15 basis points to 2.33%.

On Tuesday, the stock market ended the final June session on a higher note, but that did not stop the S&P 500 (+0.3%) from registering a 2.1% loss for the month. Equity indices spent the first three hours of the day in a steady retreat from their opening highs with the S&P 500 making a momentary appearance in the red after German Chancellor Angela Merkel said that Germany cannot consider new proposals from Greece until after Sunday's referendum. However, the benchmark index climbed to a fresh high during afternoon action with the move taking place amid reports Greece could cancel its Sunday referendum if negotiations are resumed and an agreement could be reached on required prior actions. To that point, Eurogroup Chief Jeroen Dijsselbloem acknowledged the receipt of a new proposal from the Greek government with the offer set to be reviewed at tomorrow's Eurogroup meeting. The speculation about a potential cancellation of the referendum had little impact on the euro, which spent the afternoon near its session low reached after Ms. Merkel's comments. The single currency slid 0.6% against the dollar to 1.1145.

The major averages spent the Wednesday session in a slow retreat from their opening highs, but they were able to keep more than half of their opening gains. The S&P 500 climbed 0.7% while the Nasdaq Composite (+0.5%) underperformed. Equities surged out of the gate amid reports from Europe indicating Greece is now ready to accept all conditions in order to secure a bailout. The report sparked a rush to risk assets, but the Greek offer was met with a cool reception from Eurozone leaders. Most notably, Germany's Chancellor Angela Merkel reiterated that talks will not resume until after Sunday's referendum, adding that "a compromise at any price" is not worthwhile. Similarly, Eurogroup Chief Jeroen Dijsselbloem said he does not see the need for a resumption of talks ahead of Sunday's referendum. Despite charging at the start, stocks began inching away from their highs about 30 minutes into the session after Greek Prime Minister Alexis Tsipras reiterated his call for a 'no' vote during Sunday's referendum. A small pullback ensued as Mr. Tsipras' comments cast doubt on earlier speculation that the referendum could be cancelled altogether.