The markets seem “on edge,” waiting for news that Greece will either renegotiate its debt deal with the Europeans or default. The consensus in the Dent Research Investment Committee — Harry, Rodney, Adam, Charles, Ben, John, and myself — is that a Greek default could be a catalyst to a major market sell-off.
The revised first quarter GDP report Friday morning showed we’re at -0.7% — not great, but pretty much what we expected. Also, corporate profits, as reported by the Bureau of Economic Analysis (BEA), were down by 5.9%.
Personal income and outlays were reported yesterday, and even though income moved higher than expected, spending was flat and lower than expected. The inflation indicator (PCE Price Index) was unchanged, and the core index was up just 0.1%. The increase in income will help the Fed lean toward a rate hike, while spending and the inflation indicator will do the opposite.
Also on Monday, we learned that the ISM manufacturing index reached 52.8 for May, up from a two-year lag that reached its bottom in March. The survey reported higher new orders, employment and prices — all positive news for the economy, but bad news for interest rates. Yields are moving higher, but they’re still below 3% on the long-term U.S. Treasury bond.
Between the end of the week and the June Fed meeting, the markets will get to digest some important data. The week could end with a bang as the Greek payment to the IMF is due Friday and as we learn May’s employment numbers. Wage growth or the absence of growth will be a key factor in the Fed’s decision on raising rates.
If somehow Greece agrees to some sort of debt deal and stays out of default (for now), we still have the Fed meeting in June and a possible rate hike to contend with. For now we are in a holding pattern, but there are many potential pitfalls ahead! Stay tuned!
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