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There wasn’t a lot of good news last week - not actual good news anyway - but investors appear to be grasping for anything to justify taking on the risk the Fed so desperately wants them to take. And take it they did last week with stocks rebounding a quick 5.6% based on nothing more than the purchase of a little time and illusion in Greece and a rebound in a couple of manufacturing surveys.
The Greek parliament voted to accept the conditions imposed by the EU for gaining access to enough Euros to keep the lights on for a few more months. One can’t help but wonder if the folks handing out loans over at the EU have the shortest memories of any lender in history. How along ago was it that Greece agreed to live by the Maastricht rules in order to join the Euro? Of course it turns out they fudged that bit of accounting but hey everybody deserves a second chance right? What about a third chance? Or a fourth? Greece will be back with tin cup in hand before long and we’ll get to go through this little drama again. Last week accomplished nothing.
The economic news in the US certainly wasn’t inspiring enough to justify the market rally. Personal income and spending were notable primarily for their lack of growth. Personal income managed to rise 0.3% which also happened to match the growth in prices. Spending didn’t budge last month and based on the Goldman and Redbook reports isn’t much moving the needle this month either.
Pending home sales did manage to post a substantial rise of 8.2% but the image of a bunge jump comes immediately to mind. It also brings to mind an old blues tune, “I’ve Been Down So Long, Down Don’t Bother Me”. Just in case you were starting to feel too optimistic, construction spending fell 0.6% last month and 7.1% year over year. The housing situation probably won’t improve much until more people find jobs and the weekly claims numbers last week showed 428k finding a pink slip instead.
About the only real good news on the week were the manufacturing surveys. The Chicago PMI and the national ISM both came in better than expected, at least on the headline numbers. If you want to remain optimistic I’d suggest just reading the Chicago report or at least skipping the details of the national version. Well unless you think a big build in inventories is good news as the economy slows down.
The rebound in the stock market last week seems to me to be a bit overdone based on the facts so I wouldn’t get overly excited or anxious to join the buying frenzy. The economy is still just muddling through and that doesn’t look likely to change without a major change in economic policy. Our politicians will probably put together something to avert the debt ceiling issue but I wouldn’t expect any grand bargains before the election.
I’m in Key West celebrating our nation’s birthday and I’m sure you’re doing your own celebrating so I’ll keep this short. Happy Fourth of July!
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