3 Dow Story Lines That Will Shake the Market Next Week
The Dow Jones Industrial Average (INDEX: ^DJI) is bouncing up 0.89% as of 11:20 a.m. EDT. The rally's pretty broad, with 28 of its 30 components up. The S&P 500 (INDEX: ^GSPC) and Nasdaq (INDEX: ^IXIC) have followed those gains, though their respective jumps of 0.70% and 0.58% lag the Dow.
The gain in American markets comes after European markets were down for most of the day. London's FTSE 100 is off 0.21%. Today's news is decidedly mixed, with consumer confidence seeing a fourth straight week of gains while jobless claims saw an unexpected rise.
However, while most stories on the markets today will focus on those two storylines, they don't actually matter. In a week, both data points will be forgotten and mixed in with the never-ending barrage of market noise. Instead, if you're an investor with an eye to what will drive markets in coming months, focus on these three important story lines across the next week.
1.Greek elections: Will the Grexit scenario play out?
Greek voters head to the polls on June 17, and there's plenty at stake. The big story line to watch is whether anti-bailout party Syriza winds up the victor in the elections. If so, the markets will almost surely react in a very negative way. However, it's important to look beyond the headline of a Syriza victory and know what's at stake.
If Syriza does win, its leader Alexis Tsipras has threatened to renege on bailout conditions set forth when Greece received its $302 billion in aid. It's a calculated bet. In Tsipras' mind, German chancellor Angela Merkel would blink and not allow a disorderly Greek exit -- or Grexit -- that could present huge problems to the integrity of the broader eurozone.
However, before Tsipras could take any kind of action, he'd need to form a coalition government. The forming of such a coalition could result in compromises made to other parties. That is, the bluster of campaign promises isn't always lived up to once politicians have to compromise to push through their own agendas. The bottom line is that you should be prepared for outsized moves in the market next week after Greece's election, yet investors also should know that a slim Syriza victory won't necessarily seal Greece's fate, either.
2.The Fed meets: More stimulus on the way?
After the Greek election, investor focus will shift back stateside. The Federal Reserve meeting is on June 19 and 20. The odds of an asset purchase program akin to a third round of quantitative easing probably won't be announced at that date. However, investors will get a feel for how sentiment in the Fed is shifting as employment numbers continue to disappoint and economic growth slows.
3.Spanish yields in focus
Investors don't focus on Greece because of its relative size to the world economy. By itself, its economic output is about on par with the state of Colorado. Instead, investors are zoning in on Greece because it's the first "domino" of troubled European countries that are seeking aid. The larger focus beyond Greece is Spain, the world's 12th largest economy. In spite of the "bailout" that pledged nearly $130 billion to Spanish banks, a series of downgrades hit the country's credit rating this week. That's led to the yield on Spanish bonds continuing to climb. Today they hit 6.96%. That crushing yield makes Spain's ability to service future debt questionable.
Keep the long-term view in mind
The bottom line is that there are some huge events coming in the next week that should shake markets. I'd hate to be short the VIX (INDEX: ^VIX) right now, as the level of market fear has plenty of catalysts in coming weeks. The key thing to keep in mind is not to focus on headlines or let fear get the best of you.
There are very real threats in the market today, but abandoning the market at these times tends to leave investors high and dry when the market rallies. Instead of trying to time the market, if the European situation is bothering you too much, my advice would be to shift to very-high-quality brands with dominant global market share -- like Coca-Cola, for example. These companies will fall along with the market, but generally won't fall as hard. As a bonus, in a market rebound they'll often be able to expand their dominant positions and offer great long-term returns.
Take the long-term view
That's it for this market checkup. While staring at stock screens all day can be bad for your health, the best investors don't pull out of the market. Instead, they find stocks they can live with for the long haul. Check out The Motley Fool's special report on long-term investing, where you'll find three promising stock picks for long-term investors, along with some tips on how to invest for your golden years. It's free, but don't wait -- get your report today while it's still available.
At the time this article was published Eric Bleeker owns shares of no companies listed above. The Motley Fool owns shares of Coca-Cola.Motley Fool newsletter serviceshave recommended buying shares of Coca-Cola. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.