Market Perspective for February 16, 2015

Over the coming days, the direction of the markets may depend on negotiations with Greece. Finance ministers from the eurozone countries are meeting in Brussels today to hammer out a deal with the country. The parties are taking a hard line publicly, with Greece’s finance minister declaring there are red lines in a New York Times editorial. Arriving at the meeting, Spain’s finance minister said they have a red line too: Greece must pay its debts in full. Meanwhile, Finland indicated the current agreement is the basis for ongoing negotiations. The Irish and Slovakian ministers said another meeting could be held on Friday, signaling that no deal is expected today.

Tough comments for public consumption are to be expected given the domestic opposition to the Greek bailout. In many countries, the initial bailout was extremely unpopular and changing it could cost politicians their jobs. Finland votes in April and one of the opposition parties has already said Greece is the top issue. It’s no different in Greece, where the ruling Syriza party has taken a strong position against austerity and the current bailout terms. It could face political fallout if it is seen buckling to European pressure. Although public comments by ministers aren’t worthless, they are mainly for domestic consumption or negotiating tactics. If there’s no deal today, this week could be filled with strong rhetoric that rattles financial markets, but odds still favor a deal getting done.

The S&P 500 Index and Russell 2000 come into the week at new all-time highs, with the Dow Jones Industrial Average close to a new record and the Nasdaq is at a new 52-week high, though still below its high set in 2000. Small caps have been improving their performance relative to the S&P 500 Index by keeping pace, but have yet to become the market leader. If there’s a deal in Greece this week, traders will bid the market up and we could see the first bull rally this year. If Greece weighs on the market, it may take another week before we see a larger upside move in stocks.

Earnings season is winding down, but this week begins the start of retail earnings, headlined by retail behemoth Wal-Mart (WMT). Deere (DE), Nordstrom (JWN), DirecTV (DTV), Newmont Mining (NEM), Barrick (ABX), EOG Resources (EOG), Marathon Oil (MRO) and Medtronic (MDT) also report during the week.

Economic data will be light, with the minutes of the last Federal Reserve meeting the most important news for the markets. The February homebuilder’s index will get extra scrutiny given the run up in homebuilder shares recently, as will new housing starts in January.

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