Stocks were keying off Greece and China at the open, but that faded going into the close, and with good reason: they are hardly the basis for a notable rally.
Why? To put it bluntly, neither of those countries inspire confidence among the trading community.
Let's focus on China. The Shanghai market rallied 5.7 percent overnight, the biggest one-day move in six years.
But much of that rally is an illusion. It's hard to get your head around the mind-boggling "initiatives" of the Chinese authorities in the last week. Consider just the restrictions on trading that have been put in place:
Then there are efforts to simply BUY the markets:
What's most disturbing about all this is it reflects a belief that the government can manage asset prices, when it's clear to everyone that they were the cause of the bubble to begin with, principally by allowing massive amounts of margin lending to unsophisticated investors.
It seemed like a good idea on paper: getting small investors to buy into the stock market would recapitalize cash-strapped industries, solving a major problem. But they created a whole new problem: the private savings of millions of citizens are in danger of being wiped out, and with it confidence in the government.
I also get why traders are worried about the knock-on effects of this manipulation: China is the U.S.' second-largest trading partner after Canada, so any decline in stocks and the economy there creates anxiety about the impact on global growth.
What's the fallout from all this intervention? Well, the idea that the Chinese government has provided some kind of "put" in the market has certainly gone by the wayside. You can also bet that MSCI will likely not move to include mainland China shares in their global indices this year. Longer-term, it's even possible that all this manipulation has hurt their bid to make the renimbi one of the world's reserve currencies.
Today's shutdown of the NYSE trading floor was, fortunately, a rare event.
What's remarkable isn't that there was a "technical issue" that shut trading down the NYSE floor. This has happened before on all the exchanges though this was a particularly severe example.
What's remarkable is that it wasn't really a big deal.
The problems started right at the open, when the NYSE experienced what they called "connectivity issues", meaning issues communicating orders between their customers. It was quickly resolved and did not appear to affect overall trading.
Then at 11:32 ET, the NYSE shut the entire floor down for what they called a "technical issue." Trading on Archipelago, the NYSE's electronic platform, continued as usual, as did trading in NYSE-listed stocks on other exchanges, including NASDAQ.
Trading resumed at 3:10 ET, and the all-important close came off uneventfully.
But it's what happened in between that's remarkable.
What happened was not much.
Partly, it's a reflection of how trading has changed in the last 20 years.
In the late 1990s, about 85 percent of all trading in NYSE stocks occurred on the NYSE floor.
Today, the NYSE floor is typically about 15 percent of intra-day volume in their own names.
That's progress for you.
With trading on the floor halted, volume simply moved to Archipelago, the NYSE's electronic trading platform, as well as the NASDAQ and BATS exchanges, which also trade NYSE listed stocks.
Trading desks I was able to speak with told me that institutional client flows appeared to be normal.
Total consolidated trading volume—the total trading in all stocks listed on the NYSE, NASDAQ, and BATS—was 7.3 billion shares. That's slightly higher than normal, but remember this was a day when the S&P closed down 1.7 percent. THAT by itself would cause heavier volume.
So what happened? The NYSE has declined to name a specific cause yet, but it's possibly due to a software update the night before that caused the initial problems at the open. The process of fixing that issue may have caused other software problems that eventually shut the entire NYSE floor down.
This has happened several times before, on other exchanges as well, though this is the most serious of those outtages.
How is there a "technical issue?" Here's the most likely explanation: all the exchanges are constantly updating their trading systems in order to interact with each other and keep up with new order types and trading programs. The NYSE and the other exchanges have giant "gateway" servers where the data to buy and sell stocks come into the exchange. The data is sent to "matching engines" that put all the bids and offers together, and—most importantly—communicate to the customers that the orders have been received and executed.
Sometimes, when the systems are upgraded, you get problems. For example, the matching engines could get out of sync. That's a fancy way of saying that the orders to buy and sell might not match up, or that a customer can't get a confirmation that a trade has been made.
THAT is a problem. But there's many different servers and matching engines, and sometimes there is just a problem with one or two, so small parts of the market have a problem, usually for short periods.
This, obviously, was a much bigger "technical issue" than normal, but it's still most likely a software problem.
The good news is, the SEC has just passed a new regulation, Reg NMS, that mandates that all exchanges test and upgrade their systems on a consistent basis.
The bad news is, you are not going to ever eliminate these kinds of glitches...in anything, where it is stock trading, flying airplanes, or the computer systems of cars (the car glitches are coming, believe me).
That doesn't mean we shouldn't insist on the highest possible standards, and I assume the SEC is going to remind everyone of the new Reg SCI rules and demand compliance.
It just means we do not have perfect technology and never will.
China's restrictions on trading has shut down large parts of the market.
Well, that isn't working so well. A day or so after China announced major restrictions on trading, halted IPOs, and initiated a major effort to buy stocks, half of the entire stock market has been frozen.
The Shanghai Composite closed down 5.9 percent, and the Shenzhen fell 2.5 percent. The fact the Shanghai is still up 8 percent for the year, and the Shenzhen 33 percent, is beside the point.
The Shenzhen is 40 percent off its highs. That's what matters—because millions of investors have come into the market in the last few months.
We have no idea what the Chinese stock market is doing, since suspensions of trading and daily limit falls of 10 percent or more have made it impossible to determine stock values.
However, U.S.-based China ETFs are trading, and markets here seem to be pricing in another down day in China. The X-trackers CSI 300, the largest of the mainland China ETFs, is opening down 7 percent.
Stocks falling? Let's stop trading! That will help.
Many people have asked me how important ETF's are. The simple answer is, they are important and getting more important.
They are a significant portion of trading activity on all the exchanges. How important? Volume is not the right metric to use when dealing with ETFs. It's better to use "traded value," which as the name implies is the actual dollar value of what is traded.
In June, ETF trading was close to 28 percent of total daily exchange value, according to Credit Suisse. That's the most since March.
More importantly, it's a 35 percent increase from last June.
What's going on? Partly, it's just more money continuing to flow into ETFs from mutual funds. The industry is moving toward $3 trillion in assets under management.
There's also been much heavier trading activity in European ETFs thanks to the weak euro, which unleashed a tsunami of trading in the first part of the year.
Finally, Greece is back on everyone's radar, so broad European ETFs like the iShares Eurozone ETF (EZU) and the WisdomTree Europe Hedge ETF (HEDJ) and even single country ETFs for Spain (EWP), Italy (EWI) and France (EWQ) have seen much heavier volume.
In fact, ETF trading on Monday was 37 percent of exchange traded value, the highest level since December.
Here's an important point about ETFs: when volatility is spiking, traders use ETFs to hedge their exposure. Higher volume!
By the way, ETFs have passed another test. The Greek stock market has been closed all week, but the Global X Greece ETF (GREK), a basket of Greek stocks that trades in the U.S., has been operating smoothly.
It has become THE price discovery mechanism to figure out what the value of Greek stocks are. It's down 9.5 percent for the week.
The IPO business started with a whimper, but has ended with a bang in June. Last month was the busiest for IPO issuances since 2000, with 35 deals.
So far this year, 104 IPOs have raised $18.1 billion, according to Renaissance Capital, the IPO ETF provider.
If this keeps up, we will likely end up with over 220 deals in 2015, not quite last year's 275 deals, but still respectable. 2014, by the way, was the biggest year for new issues since the dot-com era.
But what characterizes the second half is not so much the number of potential deals, it's the star power. There are a lot of big names that have already registered to go public that almost certainly will make it through the door in the second half.
This morning, for example, Spanish language broadcaster Univision Holdings filed for an IPO of up to $100 million, though that figure will likely change.
Over 120 companies have registered for an IPO, including several well-known names.
The Grateful Dead are breaking up.
Exhausted from years of touring, worn out by bickering and nonstop partying, and still grieving over the loss of a founding member of the band, the Dead are calling it quits.
Before they split up, they will do one last run of concerts.
That was the word on the street.
It was October 1974.
Specifically, it was October 16, 1974, the start of a five-night stand at Winterland in San Francisco.
It was Bob Weir's 27th birthday.
I was there.
Greek Prime Minister Alexis Tsipras's latest proposal, accepting the creditors' conditions but with some changes, has European stocks higher this morning. But the never-ending Game Theory goes on.
What does the euro zone leadership want? At this point, that seems pretty obvious. They want to get rid of Tsipras and the whole Greek leadership. They want to negotiate with a new team.
How do they do that?
1) Close the banks.
2) Tell Greek citizens that a "no" vote on Sunday is a vote against euro membership.
3) Make a public statement that "there is no basis for serious negotiations with Greece at the moment" (exactly what German finance minister Wolfgang Schauble said this morning).
4) Bet a "yes" vote will likely mean the government will fall and a national unity government will be put in place. Tsipras gone.
This may be working. Once banks were closed, it appears there may be a majority for a "yes" on the referendum.
What does Tsipras want? That is almost impossible to gauge and is the biggest problem. He says he wants to stay in the euro, but no one believes it. He wants to keep his job, but it's not clear what path he can take to achieve that. He can still stir the pot with new ideas like a referendum, but he is getting boxed in quickly.
That makes him very dangerous. There will be more maneuvering before Sunday.
Let's face it. It's been a pretty crummy first half of the year for earnings, and worse for revenues.
Right now, analysts are expecting declines in both earnings and revenues for the second quarter, though earnings will likely move into positive territory as the companies begin to report.
And there are similar problems for the second half. Earnings are facing two significant headwinds:
1) No revenue growth
Unfortunately, the trend in the second half is depressingly similar to the trend in the first half: a modest, low-single digit increase in earnings, but revenues continue to veer between flat to declining.
The fourth quarter, for example, is expected to see earnings gains of 3.4 percent, but revenues are expected to be roughly flat, up only 0.7 percent, according to S&P Capital IQ.
Blame it on the slow growth in the economy, if you want.
Regardless, better than expected earnings, weaker than expected sales. That is a problem.
It's a problem because if you really want to kick start a second half rally and move stocks to new highs, you will need to see sales pick up. You will need to see capital spending pick up. You will need to see less emphasis on cost cutting and share buybacks.
We are past the point of farce on Greece, but the story line just keeps getting weirder.
Stocks rose midday as Greece has thrown a last minute request to negotiate a new bailout, or at least an extension of the current terms, and then dropped back when it appeared there was no deal.
But there will be another meeting on Wednesday!
Creditors—who have said they will not change the terms of the prior offer—are forced to take this seriously because they are afraid of a NO vote on Sunday's referendum. They are afraid Tsipras will use the NO to reopen negotiations, which they have said they will not do.
But the creditors also do not want to be blamed for pushing Greece toward an exit by refusing to negotiate.
So the speculation is the creditors WILL negotiate, and are poised to offer new, more liberal, terms.
The hope is that these concessions will enable Tsipras to switch sides and support a YES vote on the referendum, or, even better, cancel the referendum altogether.
Why would Tsipras switch sides? Because Tsipras knows the creditors despise him. He knows that continuing to campaign for a NO vote is what some (not all) of the creditors want, because that is how they will get him out of office, assuming the vote is YES.
So the entire game hinges on whether Tsipras believes the vote will be YES or NO. If he believes it will be a YES even if he is a NO, and that will cost him his job, then he needs to switch.
But he needs a pretense. The concessions...if there is some meat on the bones...may be the pretense.
Bottom line? Tsipras is very much in charge of the pace of this game. We are very, very deep into the infinite Hall of Mirrors that is Game Theory.
The market action has been very uneven in the first half of the year. The S&P 500 is only 3 percent from its May historic high, but that is a deceptive picture.
There have been some notable sector winners, but there are also many—perhaps most—that still have modest gains for the year, but have stalled out in the second quarter. And then there is a distinct group that is in a clear downtrend.
If there was ever an argument for owning a broad portfolio of stocks, the first half of 2015 should be Exhibit 1.
First, let's look at the winners on an uptrend so far this year:
Banks have benefited from a rising interest rate environment and hopes for an improving economy, while health care, particularly biotech but also pharmaceuticals, have also been strong. The boost to HMOs and hospitals from the Supreme Court ruling on Obamacare has also bolstered the overall sector.
But there are many sectors that started the year strong, and have begun to stall in the second quarter. Two examples:
The housing numbers have shown notable improvement, as have earnings of companies like Lennar, but there is still an affordability issue hanging over the home building industry. Prices are high and getting higher, wages are still stagnant when inflation-adjusted, and the specter of higher mortgage rates have investors cautious.
"Money for nothing" interest rate policies have failed, the bond guru said in a broadside against global central banks.
Bank of Ireland, which was bailed out during the country's debt crisis, reported soaring profits for the first half of 2015 as bad debts were reduced.
Lloyds Banking Group reported a 15 percent jump in pre-tax profit for the first half of 2015 to £4.4 billion ($6.9 billion) on Friday.