Still Waiting For a Trend to Emerge

June 29, 2015

Still Waiting For a Trend to Emerge Photo

I am writing this week's blog post from Lisbon, Portugal, while attending Penn Mutual's premier reward "Golden Eagle" conference which recognizes their top 1% of advisors. It has been interesting to watch the Greek saga unfold from this side of the pond. The decision by the Greek government to hold a referendum on July 5th has caused turmoil in the process. What will happen on Monday when banks are expected to open? Does the Eurozone extend the bailout to allow for the referendum? Does the Greek government reverse its intention for a referendum? These questions and many others will be answered this week. At this point with ATMs running out of money in Greece and European leaders clearly caught off guard, it will be difficult to achieve stability in the next few days.

Another item to keep an eye on in the week ahead is the volatility in Chinese markets. Will this past week’s volatility continue and can it start to impact the sentiments and trading in other world markets? The Chinese government has reduced interest rates for the fourth time since November to record lows in an attempt to stabilize markets.

I have written extensively about the lack of volatility in U.S. equities over the past few months. We have traded in a narrow range of about 3% for the past month, and the market is struggling to breakout. We have not had a weekly move of greater than 1% in the market for nine weeks. This is the longest streak since 1993. I expect this streak to end this week.

Despite the turmoil in Greece and heightened equity volatility in China, U.S. economic data continues to improve. Consumer sentiment also continues to strengthen. I anticipate the Fed to increase rates at the September meeting given the strengthening economy and improving employment conditions. During this period, I also expect bond yields to rise modestly.

We will be updating our year-end outlooks and end-of-2016 forecasts in the next few weeks, so keep an eye out for our quarterly update.

Tags: Monday Morning O'Malley | Bonds | Market volatility | China | Greek debt

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