Daily Market Update – June 24, 2015 (Close)
While we wait for some near term resolution to the Greek banking crisis, the market reacted very positively on Monday when there was reason to believe that an agreement was in sight and then did nothing the following day when there was no news.
This morning there was again no news from Europe and the pre-open futures are flat waiting for the morning’s GDP data to be released.
That data will be among those indicators that the FOMC will be closely looking at in about a month, before deciding whether or not to raise interest rates before it goes on its own vacation and won’t be heard from again until September.
What the data indicated in its final revision of the first quarter, was that it wasn’t as bad as thought. The decrease was revised from 0.7% to 0.2%. Better, but still at a very slow pace for the first half of the year.
Interestingly, in the past couple of days there have been more people popping up doubting whether we would see any increase in those rates in 2015, at all. That was a more common belief a few weeks ago, but seemed to disappear after the last FOMC meeting, when most became convinced that September was going to be “lift-off” for the rate hike.
Any surprises in GDP, particularly more revisions upward for the first quarter, could have gone a long way in convincing the FOMC that the consumer is coming to life. Whether due to more cash in pocket from decreasing energy prices or whether from greater employment numbers and at higher wages, sooner or later that consumer spending has to kick in.
With housing picking up and those prices increasing, and minimum wage increasing and more people working, the assumption has to be that some of that additional household money is going to get put back into the economy.
While everyone knows and understands that has to happen, what has come as a surprise is just how slowly the obvious is taking to happen, maybe because people had to dig such deep holes for themselves after the last financial crisis and collapse of the housing market.
Tomorrow’s Personal Income and Outlays data may give some more of that salient data that the FOMC craves and may also be a potential market mover.
If the data continues to be good and follows the path taken today with that good GDP news, no one will be very happy, as today’s market lost everything gained during the first 2 days of trading and none of it can be blamed on Greece.
For now, indexes still sit close to record highs and as long as they can stay at these levels heading into earnings, there’s reason to believe that those markets can go even higher.
So far, this week, despite Monday’s nice gain, hasn’t had any trades get executed.
I did have a couple of trades put out yesterday and some more today, but the options market has been very, very quiet, as volatility is just continuing to be so low. With today’s price declines those trades just got further out of hand.
With that volatility being so low and premiums following them, there’s actually reason to consider being on the purchasing end of the options transaction as the premiums are so low and as long as the market continues to have an upward bias. By the same token, portfolio insurance through the purchase of S&P 500 puts is fairly inexpensive, as well.
The cure for that would be some uncertainty and there should have been plenty of that over the past month, but somehow it never materialized. despite what common sense may have expected.
Common sense also says that with the market going higher you would think that premiums for call options would get bid higher, as well, as people would be looking at options increasingly as a way of cashing in on that upward momentum.
But it was that same common sense that would have expected a spike in consumer spending to have occured more than 6 months ago as oil prices plunged, andf that still hasn’t arrived.
This morning, as the market has a moderately negative tone, there wasn’t much to do other than to await the GDP release and see where things would go as the market got ready to open for trading.
After that. there was even less to do.
While I’d like to see some more of that uphill climb so that I can finally make some trades, it would be nice to see some uncertainty come back and goive option buyers a reason to come back into the market.