Election results from both Greece and France delivered the equity markets a sigh of relief on Sunday as both elections produced positive results.
The Socialist Party won a clear majority in the French Parliament delivering President Hollande resounding support for his pro-growth programs. Since taking office, President Hollande moved to counter Angel Merkel's austerity drive by adding a growth component to help economies like Spain and Greece where economic growth has collapsed and unemployment rates remain high.
The majority will now allow Hollande to acquiesce to Merkel's demand for fiscal union in return for agreeing to a growth compact. This sets the stage for the greater economic integration demanded by Germany in return for easing off their austerity demands.
In Greece the NDP won the ability to create a new government with PASOK, bringing to closure the Greek election problems. A long road continues to lie ahead for the Greek economy as issues relating to tax collection need to be resolved along with finding a way to kick start economic growth. PASOK has said that they will form a government but not be a partner, indicating this alliance is fragile at best.
The questions now for Europe will surround their ability to manage greater economic integration, allay concerns over the ability of Spain and Italy to roll over their debt, and attempt to kickstart economic growth in countries whose unemployment rates have shot over 20%.
The elephant in the room for Europe is not how they go about the integration process but how the various swaps are unwound and what to do about a banking sector that has moved from bad to worse.
In the US this week the Federal Reserve will meet on June 19-20th and the market will be searching for clues as to how the Fed plans on moving forward with Operation Twist drawing to a close and an economy on the brink of a recession. Market participants will be watching for some sign that the Fed will move to support the ailing economy with an election coming in the fall.
As the week draws to a close the euro group finance ministers meeting and G20 leaders will meet so the market can expect good proclamations.
The good news should put a temporary floor under prices although the week following option expiration in June is historically weak. Once we clear this week, portfolio rebalancing will occur and everyone will begin looking forward to second quarter earnings.
The Dow (DIA), Nasdaq (QQQ), and S&P 500 (SPY) should see some decent gains in the coming weeks but as mentioned earlier this only buys some time before worry over economic growth begins to creep back into investors' minds and the market heads lower into the end of the year.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
