US stocks were a mixed bag over the week, first rallying and then tumbling back down as investors were transfixed by the high-stakes drama surrounding the Greek debt crisis.
The Dow Jones Industrial Average, representing 30 blue-chip stocks, was down 0.58 percent for the week, closing at 11,934.58 on Friday. In all, the Dow has fallen about 7 percent since April.
The broader Standard & Poor’s 500 slid 0.24 percent to end the week at 1,268.45. However, the tech-heavy NASDAQ Composite rose, climbing 1.39 percent to close at 2,652.89.
“It is difficult to take comfort in the main issues: the Greek crisis, the slowing of the economy, the US budget talks,” said analyst Gregori Volokhine, president of Meeschaert Capital Markets. “Investors are having difficulty finding a sector in which they feel comfortable.”
Next week, all eyes will be on Athens, where the Greek parliament is set to vote on a package of deep austerity cuts designed to prevent a potentially destabilizing default.
The US$40 billion package of cuts is unpopular, but has been demanded by the EU and the IMF as a precondition for further support.
US stock markets rallied on Monday and Tuesday as Greek Prime Minister George Papandreou’s government survived a confidence vote.
However, they fell on Friday amid warnings that ratings agencies could downgrade another EU member, Italy, jolting European banks and raising the specter of a widening eurozone debt crisis.
Closer to home, markets worried about the US’ own looming debt problems, as Democrats and Republicans appeared no closer to a deal to raise the debt ceiling and avoid a US default by Aug. 2.
In a sign of continued weakness in the world’s largest economy, the US Federal Reserve slashed its US economic growth forecast for this year to a range of between 2.7 and 2.9 percent, down from its April of 3.1 to 3.3 percent.
“There are so many uncertainties with the Greek vote, the US debt ceiling [that] it’s less about the news of the day, the economic data, than the big picture,” Marc Pado of Cantor Fitzgerald said.
Next week, markets will face the conclusion of the Fed’s second round of quantitative easing, dubbed QE2, which has seen the Fed pump US $600 billion into the US economy since November to aid the flagging recovery.
After a meeting of its policy--setting Federal Open Market Committee this week, the Fed confirmed that QE2 would end as scheduled by June 30, though it vowed to maintain near-zero interest rates “for an extended period.”
Meanwhile, a bounce could be in the cards for US stocks next week as bulls defend a key technical level and managers buy the quarter’s winners to prop up their books.
However, gains coming from healthcare, staples or other defensive sectors that have outperformed the market in the last several months would only support the notion that the US stock market needs to complete its correction phase and panic selling must occur before a more sustained comeback develops.
“We want to see more fear,” said Ari Wald, equity strategist at Brown Brothers Harriman in New York.
But be careful what you wish for.
The sources of the recent decline, including Greece’s slow march toward a default on its debt, weak US economic data and the creeping deadline to lift the US debt ceiling, are far from being resolved.
Despite a drop that dragged the S&P 500 as much as 8.2 percent below its three-year high hit early last month, the index held above its 200-day moving average — a major line in the sand as the bulls and bears battle for control of the market.
Some said the slide that pulled back to a widely followed level seemed too well choreographed.
“The fact that we went to the 200-day ... seems just a little too perfect,” said Marc Pado, US market strategist at Cantor Fitzgerald & Co in San Francisco.
The 200-day moving average now stands at 1,263.47, less than 0.4 percent below the S&P 500’s close on Friday.
“Every time you test a resistance or support level, you make it weaker,” said Nicholas Colas, chief market strategist of the ConvergEx Group in New York. “It’s almost like a piece of metal. Every time you hit it, it grows more fragile and that’s why people are really worried the third or fourth time.”
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