The S&P 500 posted its best gain in a month on Wednesday on a Bloomberg report that Germany was softening its bailout negotiation position with Greece. Specifically, that Berlin would accept a single economic reform (such as higher taxes or pension reform) in exchange for unlocking bailout funds in staggered fashion.
Like so many other “Greece is saved” headlines in recent weeks, this one was also quickly shot down by German officials saying that they would only accept a deal that was also accepted by the International Monetary Fund, the European Union, and the European Central Bank.
In the end, the Dow Jones Industrial Average gained 1.3%, the S&P 500 and the Nasdaq Composite gained 1.2%, and the Russell 2000 gained 1.4%.
The initial surge higher was driven by currencies, with the euro pushing up against the dollar. That helped commodities, with gold gaining 0.8% while crude oil climbed 1.8% to close at $61.23 a barrel. The latter was helped by inventory drawdown data as an increase in U.S. oil production to record highs was ignored.
Technology stocks led the way higher with a 1.6% gain with Netflix (NFLX) up 3.7% on shareholder approval of increased share authorization, likely setting the stage for a stock split.
Treasury bonds remained under heavy selling pressure with the iShares Barclays 20+ Treasury Bond Fund (TLT) losing another 0.9% to return to early October levels. That pushed the 10-year Treasury yield to within a hair of the 2.5% level last seen in September. Government bonds elsewhere were also hit with 10-year yields in Britain and Japan hitting seven-month highs.
Technically, the S&P 500 has returned to the middle of the trading range going all the way back to December; suggesting the weakness earlier this week as well as the mid-May upside breakout were both head-fake moves. However, market breadth or the percentage of stocks that are in uptrends suggests the day’s bounce was an oversold reaction rally in the context of a medium-term pullback.
You can see that in the very predictable way the market reacted during the bounce: Apple (AAPL) bounced off of its 100-day moving average to close above its 50-day average; the S&P 500 closed above its 50- and 100-day averages, and the Dow tested above but closed below its 50-day average.
Much depends on the fate of ongoing negotiations with Greece as well as the outcome of the Federal Reserve’s two-day policy meeting on June 17.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.
