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Stock Streak at Risk as GDP Revision Uninspiring, Gully Persists in Greek Talks

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June 24, 2015

Even bulls need to catch their breath. The S&P 500 (SPX) has gained in five of the last six trading days but may churn in mixed to lower action Wednesday if earlier indications hold. Q1 GDP growth, the broadest measure of the economy, didn’t slump as much as thought in Q1 but the stock market had a muted reaction at best to the revised figures. Instead, another snag in Greece debt negotiations invited some caution on Wall Street.

Talks continued with Greek Prime Minister Alexis Tsipras preparing to meet lenders in Brussels. Media reports said Tsipras told officials that creditors haven't accepted Greece’s latest reform proposal, adding pressure on European stocks and early U.S. stock trade. That contradicts the cautious enthusiasm that markets showed apparent progress in the talks earlier in the week.

As noted to start the week, coming sessions could begin the typical late-quarter maneuvering by fund managers to build up returns and as the tide generally shifts away from bonds. Watch, too, for sector rotation as the quarter wraps. It’s been an impressive few weeks of gains for financials and technology shares in particular. Does quarter-end cause some investors to pocket those returns or is that performance simply likely to draw more “window dressing” buying interest. All told, these market machinations could stir up additional volume and volatility between now and quarter end, even leading up to the July 3 holiday market closing.

SPX-Win-Streak

FIGURE 1: STREAKING.

The broad S&P 500 (SPX) has gained in five of six trading sessions but may pause at least briefly. It came within 10 points of all-time highs. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

GDP: Not as Bad as Previously Reported.  The U.S. economy contracted by a revised 0.2% in Q1, a smaller decline than previously reported that mainly reflects higher consumer spending and a lower drop in exports. The increase in consumer spending, the main engine of U.S. growth, was revised to 2.1% from 1.8%. That’s a positive sign for stock bulls anxious to see job growth translated into spending. Overall private sector investment also rose a bit more, up 2.4% vs. a prior 0.7% estimate, owing to stronger spending on home construction and inventories. Inflation as measured by the personal consumption expenditure price index fell at a 2% annual rate, but the core rate that excludes food and energy was up 0.8%.

“Like” this? Wal-Mart’s (WMT) smiley face may look a little glum as Facebook (FB), with its 3% stock gain on Tuesday, now claims a market value of nearly $245 billion, surpassing the big-box retailer in size. The two don’t compete of course but it’s an interesting comparison nonetheless. WMT shares are down some 15% so far in 2015, challenged by competitors Amazon.com (AMZN), Target (TGT), and others. It’s now worth about $235 billion.

Splitsville. Netflix (NFLX) is an early gainer, on track to open at a record high and at more than double its 2015 starting price. The media content streamer late Tuesday announced a 7-for-1 stock split set to kick in on July 15. With the news, NFLX joins the ranks of Apple (AAPL) and others who’ve split high-flying shares at an aggressive ratio. And it begs the question, more splits to come?

Good trading,
JJ
@TDAJJKinahan

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