Stocks were down on Friday, but logged a positive week – the only positive weekly performance in May. With the long weekend and the shortened week ahead, stocks may struggle to find their footing. The May employment report will be the key data point for the week, but we will have to wait until Friday morning for it. Stocks faded Friday on renewed/continuing concerns over Europe, especially with Greece and now more of a focus on Spain and their ailing banks. Greek elections are slated for June 17th, and the EU will not move to provide any new funding until they see the outcome. Chances are good that the socialists will win control, and with that control, the right to renege on the austerity measures they agreed to, to receive the bailout funding from the EU and IMF. Regardless of the outcome of the elections, and regardless of whether they say they intend to pay the money back, and whether or not they actually mean what they say, Greece will NEVER be able to pay its debts. Their only shot is to drop out of the EU and go back to the drachma, so they can completely default on all debt, and restructure their economy. This will be devastating at first and for a long time, but eventually, they will at least have a chance to pull themselves back up. This may be the best possible outcome for Greece, since the culture is in dire need of a major reality check.
For the rest of the EU, a Greek exit will be very negative, and will likely threaten the future of the EU and the euro. However, if they take the money they have been planning to give Greece, and focus that money on Spain, Portugal, etc., they will probably be able to stem the tide and eventually stabilize their economies. This will not be easy or cheap, but they can do it if they work together. For stocks here at home, a Greek exit from the EU and euro will definitely push stock values down further, which is what I expect and is what I have been sitting in cash and waiting for, for more than a month. I see the S&P 500 dropping to 1,200, which is where I would be comfortable buying in size. I will likely start to invest above that level, putting some cash back to work in a phased approach (I can always be wrong). We could get some specific news over this weekend that may impact trading early in the week, so I will be watching closely for that.