Stocks moved lower on Thursday ahead of the long Independence Day holiday. Markets in the United States will be closed on Friday in observance.
While Americans prepare to celebrate their freedom, all eyes are on whether the Greek people will reestablish theirs with an over-the-weekend referendum vote on whether to sign up for more draconian austerity measures in a bid to secure another tranche of bailout funding. A “no” vote could precipitate an exit from the currency union, a debt default, and the restoration of the drachma.
Worries about that outcome weighed on stocks, with the Dow Jones Industrial Average down 0.2%, the Nasdaq Composite was down 0.1%, the Russell 2000 was down 0.6% and the S&P 500 was down slightly.
Utilities led the way in a defensive tone of trading, up 1.4% as a group followed by energy and telecoms. Materials and financials were the underperformers, losing 1% and 0.4% respectively.
Yelp (YELP) dropped 10% after Bloomberg reported the company couldn’t find a buyer, putting plans to cash out on hold. Xoom (XOOM) gained 21% after it agreed to be acquired by PayPal for $25 a share. BP (BP) gained 5.2% after announcing a $18.7 billion settlement for claims relating to the Deepwater Horizon accident and oil spill from 2010.
On the economic front, the normally dramatic monthly jobs report was a bit of a dud: Nonfarm payrolls expanded by 223,000 (versus 230,000 expected) as the unemployment rate dropped to 5.3% (down from 5.5%) to the lowest level in seven years. The numbers from the last two months were downwardly revised by 60,000.
Philippa Dunne of the Liscio Report notes that while the result may seem disappointing at first blush, it’s in line with the average of the past three months. And it still represented a bounceback from a weak first quarter, although we haven’t returned to the strength seen at the end of 2014.
At the current trajectory, the unemployment rate is on track to hit 5% in December — keeping the pressure on the Federal Reserve to lift rates in September despite ho-hum wage growth.
Returning to Greece, the “no” vote camp got a lift from the International Monetary Fund, which lent support to Athens’ assertion that without debt relief, another bailout arrangement would ultimately prove futile.
Specifically, the IMF has said the eurozone will need to provide Greece with at least $55 billion in funding over the next three years and a debt write-down of 30% to achieve debt sustainability targets set in 2012. At a minimum, this could be achieved by lengthening the maturity of existing obligations, lowering the present value of those debts and lightening the load of repayment to the beleaguered Greek economy.
It’s nice to see the IMF coming back to reality, but it remains to be seen if hardliners in creditor nations such as Germany will be able to sell a debt reduction to their voters. At this point, fireworks look likely no matter the vote result when markets reopen on Monday: A “no” vote could accelerate a bank crisis while a “yes” vote could result in a political crisis in Athens.
In response, Edge Pro subscribers continue to hold a Jul $17 call option position in the Short-Term VIX (VXX) carrying a gain of 274% since recommended on June 24.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
