Stocks rallied in the past week after the Fed appeared dovish when it said it did not see strong enough data yet to raise interest rates from zero, but it did suggest that there could be one or more hikes this year once the economy improves.
However, the rally faded and stocks sold off Friday as traders positioned for the uncertainties surrounding the meetings of euro zone finance ministers and officials, set for Monday. There were also concerns that Greece, after securing emergency funding from the European Central Bank, would still see a run on its banks.
Robert Sinche, chief global strategist at Amherst Pierpont, believes the odds of a default have increased dramatically, and markets will react negatively.
"My guess is there will be dislocations, but I don't think this is a crisis situation. I wouldn't want to own any Greek banks because there will be capital flight and capital controls, and Greek banks will get trashed. ... It's become very disorderly in Greece but it's not clear it gets very disorderly elsewhere in the world," said Sinche. "We know where this is headed. We just don't know when."
The ECB on Friday reportedly raised the emergency funding cap for Greek banks by 1.8 billion euros ($2 billion). Reuters reported that 4.2 billion euros were withdrawn from Greek banks in the past week.
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"What happens to the market hinges on Greece, and we're not going to get any good news," said Milton Ezrati, market strategist and economist at Lord Abbett. "There's going to be a lot of fits and starts, but we're not going to know until the 30th ... they have to pay the debt on the 30th and both sides will go to the wire. We're going to have the same on and off again."
Greece has to make a payment of 1.5 billion euros to the IMF by June 30, a deadline the organization has said is firm.
Sinche said it is likely Greece will default. "They have to restructure. Restructuring debt is default," he said. "Now it's basically the ECB and EU governments that are on the hook for most of this debt. The question is have they had enough."
Euro zone leaders meet after finance ministers Monday, and despite assurances from Greek Prime Minister Alexis Tsipras that Greece would get a deal with creditors, there was no sign of progress ahead of the summit. "(German Chancellor Angela) Merkel has been the one who has let the this thing go on, but I'm not sure she'll let this go on any further," said Sinche.
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Keon, on the other hand does not expect a default though the odds have increased, and he says like other investors, he's relatively complacent about the outcome. "I think the pressure right now is going to be more on European markets than the U.S. market. The U.S. market could kind of stall out here, and a real deterioration of Greece would probably result in a drop in risky assets worldwide," he said. "The reason you're seeing a rally in Treasurys is if global uncertainty increases then U.S. Treasury bonds will be the biggest beneficiaries."
Treasury yields ended the week near their lows. The 10-year was at 2.26 percent late Friday, while the two-year was at 0.60 percent.
Stocks sold off Friday, ending near their lows of the day, as a quadruple witching expiration of options and futures added to volatility. But for the week they were positive, with the Dow up 0.6 percent at 18,015, and the S&P up 0.7 percent at 2,109. The Nasdaq broke through its 15-year high, and while weaker Friday, it finished the week with a gain of 1.3 percent at 5,117. The Russell 2000 was the best performer at 1,284, a gain of 1.5 percent