U.S.
equities defied fears about the Greek elections by rallying more than 1% last
week. The gains came as policy makers around the world reassured investors that
they would supply liquidity if the markets tumbled in the wake of the Greek
vote. The Dow rose 1.7%, or 213 points, to 12,767.17, its second consecutive
week of gains. The S&P 500 jumped 17 points to 1342.84, and the NASDAQ
added 14 points, to end at 2872.80. Stocks in the U.K., France, Germany, Spain
and Italy also climbed Friday.

Regulators
around the world made calming noises. Banking regulators indicated that they
might let banks use a wider variety of assets, like gold or equities, to meet
liquidity buffers, according to the Wall Street Journal. Speculation also grew
that central banks around the world would conduct synchronized easing if
necessary to calm the financial markets. And the Fed has a two-day meeting
ending Wednesday, at which some expect it to extend the Operation Twist
bond-buying program or restart quantitative easing.

“I’m
putting a lot of faith in markets making politicians behave and make the tough
decisions,” says John Manley, chief equity strategist at Wells Fargo
Advantage Funds, who expects the S&P 500 to remain in a trading range of
1250 to 1450. “This nonsense can’t go on forever.” Today’s
marketplace, he says, reminds him of the early 1980s, when the bond markets
pushed yields ever higher, giving the Federal Reserve the political cover to
fight inflation.

Charles Gave, GavKal Research’s chairman, is downright
optimistic about U.S. stocks. “We’ve been in a bear market for the best
part of the last 12 years” due to the misallocation of capital, he says.
China’s currency controls, the Fed’s artificially low interest rates and the
creation of the euro have caused this misallocation, and it’s about to end, he
predicts. “If the euro disappears, it’s fabulously good news. The markets
will go down for two days and up for many years,” Gave says. “We are
witnessing the end of social democracy.”

The euro’s
demise would result in money flowing out of short-term havens and into good,
independent companies that don’t rely on government spending. He likes
companies that have strong dollar-denominated cash flows, don’t need to borrow
money from banks, and don’t rely on government spending. Johnson & Johnson
(ticker: JNJ), IBM (IBM), Texas Instruments (TXN) and SAP (SAP) are among those
he sees thriving in the new world order. He’d avoid banks (Source: 
Barrons Online).

Last week POSITIVE economic news exceeded NEGATIVE economic news and the markets were helped out by optimism from Europe

Below is a succinct list of last week’s events:

Positives:

1) After falling every single day last week, the Spanish IBEX (stock market index) rallies every single day this week in anticipation of bank recap via European Financial Stability Facility.

2) With room to move, the Peoples Bank Of China and Royal Bank Australia both cut interest rates.

3) Canada and Australia both report better than expected job gains in May.

4) HSBC private sector weighted services index in China rises to 54.7 from 54.1 to the best since Oct ’10.

5) UK Purchasing Managers Index services index holds at 53.3 for 2nd month instead of falling to 52.4 as expected.

6) US Institute for Supply Management  services index unexpectedly rises to 53.7 in May vs 53.5 in April, a relief in light of growing economic worries.

Negatives:

1) Euro zone retail sales, German factory orders, German exports and Italian Industrial Production all fall more than expected in April.

2) From asset price/market standpoint, the European Central Bank, Bank of England and Ben Bernanke did not provide indications that they intend to stimulate.

3) Initial Claims 1k less than expected but last week revised up by 6k. Downward trend seen temporarily stalled out.

4) Notwithstanding another record low in mortgage rates, purchase apps fall for 4th straight week and refi’s only rise by 2%. Fed’s likely answer is to try to lower mortgage rates even more. Winning!

5) China’s state sector weighted Purchasing Managers Index services index falls to 55.2 from 56.1, the lowest since at least Mar ’11.

Source:  The Big Picture

The
Dow Jones Industrial Average returned to the black last week, as stocks surged
3.6%, a testament to the fact that markets move on whispers from all corners of
the globe, now more than ever.

Not
only do investors need to watch the political machinations in Greece these
days, they have to care about how many Big Macs people are eating in China. The
answer: not enough. On Friday, McDonald’s (ticker: MCD) said sales in China
fell last month, and analysts blamed it on low consumer confidence.

China clearly recognizes the slowdown,
which is why the government cut interest rates on Thursday. In a week when
investors were fixated on what central banks might do to stimulate the markets,
China’s cut was the only real action.

Elsewhere,
the merest hint on Wednesday that the European Central Bank is open to cutting
rates—and news that some Fed officials are ready to act—sent shares rocketing.
The Dow jumped 286 points, its largest one-day gain this year, and finished the
week up 435.6, at 12,554.2.  The Dow index posted its biggest weekly gain
of the year.

The
Nasdaq Composite added 110.9 points, or 4%, to 2858.42. And small-cap stocks,
as measured by the Russell 2000, rose 4.3%, to 769.17.

Are
traders getting ahead of themselves? Probably. Fed Chairman Ben Bernanke didn’t
sound particularly excited about using the Fed to shock the market back to life
when he spoke before Congress on Thursday.

“I
think people are putting way too much emphasis on boilerplate language coming
from the Fed,” said Brian Jacobsen, chief portfolio strategist at Wells
Fargo Funds Management. “So the chairman said they’ll ‘support the
economy.’ Of course they’re going to support the economy.”

The
FOMC won’t meet until June 19. That’s the same week of the Greek elections,
meaning investors get to ruminate again in the coming week.

That’s
not to say that next week will be a dull one. China is set to release data on
Saturday about retail sales and industrial production. This week’s rate cut
makes it apparent that the data will be disappointing, Jacobsen predicted. But
the fact that they didn’t cut rates by more than 25 basis points, to 6.31%,
indicates that it’s also unlikely to be disastrous.

European
Union officials will also hold a conference call on Saturday where Spanish
officials are expected to announce whether they need a bailout.

“The
markets are going to react on Monday even though it will be a quiet day on the
news front,” Jacobsen said
(Source:  Barrons Online).

Last week, U.S. Stocks and Foreign Stocks increased and Bonds
decreased.  During the last 12 months, BONDS outperformed STOCKS.

Source:
Morningstar Workstation. Past performance is no guarantee of future
results.  Indices are unmanaged and cannot be invested into
directly.  Three, five and ten year returns are annualized excluding
dividends.