The major U.S. averages notched another win on Tuesday in a very light volume session ahead of the start of Federal Reserve chairman Janet Yellen’s two-day semi-annual monetary policy report to Congress.
The tailwind from the 11th hour Greek “pre-deal” announcement on Sunday night remains the dominant catalyst in play despite unresolved issues such as the need for a short-term “bridge” loan to reopen Greek banks and hit a July 20 debt repayment deadline to the European Central Bank.
Also, there were reports that the International Monetary Fund is threatening to pull out of any new agreement unless hardliner creditors in Germany and Finland (where, as an aside, the government is steadfastly against giving Greece more money) soften their stance on debt haircuts. These potential wrinkles, for now, are being ignored as euphoria carries the day.
In the end, the Dow Jones Industrial Average gained 0.4%, the S&P 500 gained 0.5%, the Nasdaq Composite gained 0.7%, and the Russell 2000 gained 0.6%. Healthcare stocks led the way with a 1% gain thanks to a 2.3% rise in biotech stocks.
There was plenty of excitement in the headlines despite the slow pace of trading.
The Iran nuclear deal was cinched, paving the way for a million barrels of Iranian crude oil to hit the open market. But crude oil and energy stocks inched higher in “sell the rumor, buy the news” fashion.
There was an odd Twitter Inc (NYSE:TWTR) takeover rumor featuring a fake Bloomberg story. And the Wall Street Journal reported Chinese state-owned Tsinghua Unigroup had presented a $21-a-share takeover offer for Micron Technology, Inc. (NASDAQ:MU); however, the company said it never received an offer. Both TWTR and MU stock posted big gains as investors were duped by what looks like classic manipulation tactics.
June retail sales came in weaker than expected; although Deutsche Bank noted the control portion of retail sales that goes into GDP calculations rose at a 3.3% annualized rate.
And before-the-bell earnings from JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) were largely as expected. Bank of America (NYSE:BAC) will report before the bell on Wednesday.
The big news for tomorrow will be the refocusing on the potential pace and timing of interest rate hikes from the Federal Reserve later this year. There has been some hope that recent turbulence in Greece and China would encourage the Fed to once again push back its tightening campaign. In a speech in Cleveland on Friday, Yellen reiterated that the flow of data supported raising rates this year — so watch to see whether she fleshes out her rationale for this tomorrow.
Expectations are closing on the Sept. 17 policy announcement as the date the Fed finally pulls the plug on its zero-percent-interest-rate policy that has been in effect since 2008.
Between now and then, policymakers will have two job reports to base their decision on as well as the Q2 GDP report and the Q2 employment cost index.
Technically, market breadth suggests the bulls may have gotten ahead of themselves as the number of net advancing issues on the NYSE dropped 42% from Monday’s rally. Also, the 18,000 level on the Dow has proven to be a tough hurdle for the bulls to stay above since it was first cleared back in December.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
