Friends
Well, well, no one expected the EU summit to produce such a promising set of initiatives, now did they? Did Ms. Merkel actually blink first. It appears so, as the Italians and Spanish basically said- bail us out or else (you know the old adage- if you owe the bank $50,000 they own you, but if you owe the bank $50 million dollars you own them). Basically they agreed to allow the ESM to directly recapitalize banks, and agreed that funds received from the ESM would not be senior to existing debt. Also the ECB will assume the role of banking regulator for the EU by the end of the year. Are the problems solved? Of course not, but a big step was made in the right direction. Will Ms. Merkel be able to sell it back home in Germany? We will see.
Boy, did the markets like the news. Stocks exploded to the upside right from the start, and for the day the Dow Jones Industrial Average was up a whopping 277 points to close at 12,879. The S&P 500 was up 33 points to finish the day at 1362. Gold jumped $50 to trade at $1600, while oil rallied a stunning $7 to finish trading near $84.75 per barrel WTI. The S&P still was down for the quarter, but today really helped to ease the pain, and keep stocks in positive territory for the first half of the year. Again, considering the headwinds that the bulls have had to deal with, it is amazing that the bears have not had the upper hand. Will we be able to continue the advance as the 3rd quarter begins next week? Are we developing a reverse “head and shoulders” formation in the S&P which would indicate higher prices? We’ll just have to stay tuned.
We said that there was likely to be a lot of fireworks towards the end of this week. Yesterday’s crazy volatility and todays advance sure qualified. Now we have to prepare for next Friday’s job report, and then we get earnings season beginning the second week in July. There are still plenty of headwinds for the bulls to deal with, but for the moment, they win the day as the bears got caught leaning too negative into the EU summit. We’ll see who gets the upper hand next week.
Have a nice weekend everyone.
