Stocks: Why Won't You Crumble Already? -- Barron's Blog

        By Ben Levisohn
        Stocks finished lower today following Greece's "no" vote, but it could have been much worse.
        The S&P 500 fell 0.4% to 2,068.76 today, while the Dow Jones Industrial Average dropped 0.3% to 17,683.58, and the Nasdaq Composite declined 0.3% to 5,020.71. The Russell 2000 dipped just 0.1% to 1,246.96.
        What's a bear to do? Hope for the worst. Citigroup's Robert Buckland and team predict the S&P 500 will gain 11% over the next 12 months, but see three risks to their outlook:
        We would highlight three key risks to our optimistic view. First, the deterioration in Greece is clearly unsettling. However, Citi's economists and rate strategists think that the contagion effects should be contained. Key to this is ongoing liquidity support from the ECB. For now, we do not forecast Grexit, but the risks are clearly rising.
        Second, any upturn in the US rate cycle is not something we take lightly. However, as this reflects an ongoing improvement in the economy, we think that the equity markets should be able to take this in their stride. It usually takes more than one rate hike to stop a bull market. A by-product of higher Fed funds may be a stronger US$ which could put pressure on markets in economies running current account deficits.
        Third, the slowdown in the China economy remains a concern. Credit expansion has slowed markedly, bad debt concerns haunt the banking sector and growth forecasts remain under pressure. While we think that China is not heading towards recession, it seems that high historic growth rates are less likely in the future. In particular, a subdued China will remain a drag on the more commodity-exposed economies and companies.
        Evercore ISI's Dennis DeBusschere and team add a fourth:
        Despite the "No" vote in Greece, credit spreads remain relatively tight and contagion appears contained, helping keep U.S. futures from sliding lower. Commodity prices are weak though with oil and copper both -4%. With economic activity slower today than at the end of 2015 and equity multiples higher, earnings growth should be an increasingly important driver of forward returns. 2Q reporting kicks off this Wednesday and we will be watching closely for signs of either 1) reductions in forward guidance and 2) declines in profitability. Either would suggest further ESP estimate reductions and weigh on market returns.
        Earnings? I'd almost forgotten.
        (END) Dow Jones Newswires

        July 06, 2015 18:52 ET (22:52 GMT)

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