Here’s Why Markets Rallied Into Close With a Facebook Lift

Markets died and then rallied to flat again as European leaders “prepared contingencies” for a possible Grexit.

Markets died hard and fast earlier today as major indexes registered as much as 1.5% of losses after news that Euro zone officials were unofficially “preparing contingencies” for a Greek exit from the Euro.  Unofficial statements were not enough to keep markets down however, as major indexes rallied back to flat levels by the end of the day.

So the world continues to wait on Europe, as the SPDR S&P 500 ETF (NYSEACA:SPY) gained .05%, the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) lost .1%, the PowerShares QQQ Trust Series 1 ETF (NASDAQ:QQQ) gained .19%, and the iShares Russell 2000 Index ETF (NYSEARCA:IWM) gained .64%.  Our beloved (not so much) Facebook (NASDAQ:FB) actually gained 3.5% today, despite a slew of new and fresh law suits and regulators on their trail (more to come later).

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The latest from Europe: As we already know, many European leaders have stated that if Alexis Tspiras of the hard left party is elected as Prime Minister of Greece, that election outcome would be considered a breach of the Eurozone bailout agreements, in which Greece would run out of money, default, and switch back to the Drachma.  European leaders today in their Summit in Brussells have stated unofficially that there are “contingency plans” to cope with a “Grexit,” and that a Greece exit from the Euro would, to put it lightly, not be fun but sustainable.  More importantly however, if Greece leaves, Spain, Italy, and Portugal could leave, which would surely cripple the Euro and send markets tumbling.

Europe has yet to tank the world, but it appears that Facebook is really close to tanking itself, as just four days after trading, the Social Media company faces multiple lawsuits and Federal Regulators for giving stock tips to “valued investors” before trading started.  The gripe seems to be that top analysts at major banks including Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC), and JP Morgan (NYSE:JPM) told only their “top” clients that they thought Facebook (NASDAQ:FB) stock was not as valuable, and “normal” investors like the rest of us had no access to such information.  CEO Mark Zuckerberg as well as members of his board face law suits as well, and Morgan Stanley (NYSE:MS) was subpoenaed by the State of Massachusetts for the same idea.  Faceplant!

A more serious headline which was overshadowed by Europe and Face(plant)book was the fact that HP (NYSE:HPQ) Computers cut 27,000 jobs today.  Oddly enough, new home sales increased for the month of April, so I am not sure where to draw the line regarding economic recovery except for the fact that the recovery is like our current market: flat and volatile at best.

Bottom Line: Europe and Facebook continue to sway markets with their random acts of ridiculous proportions.  That’s one way of putting it, however I am sad to say that my outlook is still very bearish as there are many threats remaining on the horizon.

John Nyaradi is the author of The ETF Investing Premium Newsletter.