Greece remains problematic. Germany and Greece don't see eye-to-eye on how to proceed with austerity measures in Greece.
The "pro-bailout" parties won enough seats in Sunday's election to form a government, but it turns out that the appellation means not only that these parties don't want to leave the eurozone, but exactly what it says - they want more bailouts. They are calling for more time to reach already established austerity goals. That means more bailout money in the interim. Pro-bailout indeed. The German government is reportedly not happy.
This isn't bothering the financial markets this morning, and perhaps rightly so. The risk of a credit implosion caused by a downgrade in the value of Greek debt resulting from a move back to drachmas has been reduced, and that is the key variable for US stock values. The ongoing economic problems in Greece are of minor significance to US corporate earnings.
S&P futures indicate an up open of about 6 points.
There is some good earnings news supporting the S&P. Oracle had a very good report and the stock is up 5% pre-market. Walgreens reported earnings below expectations, but the stock is up. Perhaps decent news rates as good news given how much the stock market has been dragged down on European concerns. FedEx stock, however, is lower despite beating forecasts because revenue growth was disappointing. FedEx revenue is sometimes taken as a barometer of overall US economic demand.
It is easy to read too much into these reports this morning because of the dearth of US news with impact lately. It is nice simply to have something non-European to analyze.
May housing starts fell to a 708,000 annual rate from an upwardly revised 744,000 rate in April. May housing permits jumped to a strong 780,000, however, suggesting future gains. Housing starts have been inching higher over the past two years despite (or because of) being at extremely low levels. Residential construction has been boosting GDP in recent quarters and this trend is likely to continue.
The S&P 500 is still well below the 1405.82 close of May 1. Stocks have tremendous relative value, so there is room for the market to drift higher if risks from Europe are perceived to have diminished. The summer months remain worrisome, given the track record not just the past two years, but over the past half century. A problem in Europe can get blown out of proportion at any time. For now, though, we'll welcome the recent bounce and stabilization while keeping our enthusiasm in check.
Founder and Chairman, Briefing.com