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Market Update

Stocks Higher but Move Lacks Traction as Greek Troubles Persist

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June 25, 2015

Wall Street was trying for tepid stock market gains Thursday, a mild rebound from its finish in the red on Wednesday. Upbeat consumer spending news helped the mood, but caution tied to the lingering stalemate for a Greek debt resolution likely capped the stock market’s upside. As stocks nosed higher on the consumer stats—cautiously higher of course as too-hot data could spur the Federal Reserve into a more aggressive interest rate response—the closely watched benchmark 10-year Treasury yield rose to 2.405%.

Fear-Gauge-Higher

FIGURE 1: EXPECTED BOUNCE?

The CBOE Volatility Index (VIX) hit a session low near 12 on Wednesday before closing the day up nearly 10% at 13.26. Data source: CBOE. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

VIX Bounces From 12 (Again). The CBOE Volatility Index (VIX), the market’s “fear gauge,” hit a session low near 12 on Wednesday before closing the day up nearly 10% at 13.26 (figure 1). A VIX move to 12 has routinely triggered a bounce higher in recent sessions and Wednesday proved no exception.

Still No Agreement. Stocks are having a hard time advancing with ease as the Greece saga continues. A news-weary stock market seems to be increasingly shaking off small progress and setbacks and may be waiting for a clearer resolution before fully reacting. As of posting, Greece’s Prime Minister Alexis Tsipras on Thursday has already met with heads of the International Monetary Fund, the European Commission, and the European Central Bank, which oversee Greece’s bailout. However, the two sides failed to comprise and media reports said each would present separate packages to the Eurogroup meeting in the afternoon in Brussels.

Biggest Gain in Six Years. Consumer spending surged 0.9% in May led by new car purchases and more spending on the gas to fill those tanks. It was the biggest one-month gain in spending in six years, according to Commerce Department data. Personal income, meanwhile, rose a solid 0.5% for the second month in a row. This report also offers an inflation snapshot. Or in this case, no apparent evidence of an immediate inflation risk. Inflation, as gauged by the personal consumption expenditure (PCE) price index, rose 0.3% in May. The PCE index has risen just 0.2% in the past 12 months, however. The core PCE index that excludes food and energy was up 0.1% in May. The core rate rose at a 1.2% pace year over year, down from 1.3% in April. The PCE index is a favorite inflation gauge of the Federal Reserve.

Good trading,
JJ
@TDAJJKinahan

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