10th July - The bystanding S&P
13 July 2015
TECHNICALS:
Daily iShares S&P 500 chart with relative strength v Europe, UK emerging markets:
It’s clear that the S&P has been relatively strong throughout the crisis since the middle of May.
But note too, the speed with which that relative advantage has disappeared at the latest sign of a resolution in the last two days.
Daily chart Sep S&P futures
The daily price action bears this out: the solidity of the lack of a pull-back in the S&P has contrasted with the UK and European markets.
But by the same token, the speed which those sold markets have sprung back has thrown the continued sideways price action of the S&P into the shade.
The S&P is a bystander, a relatively safe haven, outperforming on the downside and underperforming on the upside.
FUNDAMENTALS:
Two themes have more or less dominated equity markets this year including the S&P:
Both have generated a huge amount of uncertainty, something equity traders do not like.
In the case of the Fed, at the start of the year it was widely expected the Fed would begin hiking rates by June this year, but a weak Q1 GDP report, caused by another tough winter placed a huge question mark over that.
Here we are now almost mid-July and the Fed has still yet to act, despite comments from Fed chair Yellen a few weeks ago that rates would start to rise this year, probably by September.
But in the FOMC minutes released on Wednesday this week, policymakers sounded a cautious tone. They were concerned not only with events centred on Greece, but also the weakness of China’s economy and also said they needed to see more evidence the US economy was gathering strength. In short, a rate hike may occur this year, but then again it may not.
Yet more uncertainty.
Then there is Greece. After two earlier international financial rescues, the economy remains a mess.
For several months this year, Greece and her international creditors have tried to find common ground to avoid Greece falling into default, falling out of the Euro and declaring Bankruptcy. But the Greek government, elected on an anti-austerity platform, are refusing to accept the bitter pill of yet more austerity demanded by her creditors in exchange for more financial assistance. In fact the Greek prime minister is risking economic collapse as he tries to squeeze better terms from his country’s creditors which from the Greek point of view would include a degree of debt forgiveness.
Clearly the Germans as the largest creditor are resisting such a move.
The circus has rolled on for weeks and we are told it comes to a head this weekend.
Whatever the outcome, we judge so long as there is a solution; Greek exit from the Euro or fresh rescue, equity markets, especially the non US ones, will rally hard as uncertainty would have been removed from the market, leaving only a decision from the Fed on interest rates as the last area of vagueness.
That vagueness may well hamper the S&P from fully joining in the rally - if it continues - elsewhere.
We still think the US market is bullish because the US economy has bounced back from the Q1 slowdown, Job creation is holding up well and consumers have shown some resilience. It fits then, that the Fed will hike after all before year end. Policymakers have repeatedly stated rate hikes when they do start will be small and gradual.
But, to repeat, the US may still underperform others when uncertainty subsides.
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17th July - The Eurostoxx 50 is poised again 
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6th July - Gold doesnt want to play with the Vix