US shares outlook after Fed’s interest rates prospects, Greece weighs

U.S. shares dropped from on Friday, led by energy shares, on worries from Greece ahead of Monday’s emergency EU summit that would decide the fate of the Hellenic country.

The Standard & Poor’s 500 Index slipped 0.5 percent to 2,109.99 points at the close in New York, after climbing near a record of 2126.75.

Dow Jones Industrial Average dipped 0.6 percent to 18,015.95 points, while Nasdaq Composite Index lost 0.3 percent to close near a record at 4502.60.

However, on the weekly basis U.S. stocks locked on a gain to pare some of the losses incurred the previous three weeks.

The equities took a boost from the Fed’s announcement it would not raise interest rates quickly and that it would depend on the progress in economic data.

The Fed’s interest rates outlook gave support to stocks, which have benefited from the near-zero borrowing cost for six years.

The withdrawal of the Fed’s generous stimulus did not affect the shares rally and therefore a longer period until interest rates rise could help equities resume its rise.

But how investors should deal with U.S. economic data? Since the Fed has linked its monetary policy to the development in economic data, this means any significant progress in the data could hurt equities and the opposite is true.

Perhaps the coming data may not signal a strong progress, especially as the latest forecasts from the Fed signaled a downgrade in economic growth and unemployment, while inflation is predicted to rise slowly towards the Fed’s target.

U.S. shares are still trading within an upside channel and so far there are no signs of change in direction despite the fall recorded since hitting a record high by mid-May.

The bond market has stabilized as the selloff has halted causing yields to retreat, which could prompt investors to continue to hold shares.

Greece Concerns

The fear factor for equities remains the turmoil in Greece after the breakdown in talks with creditors and European officials have sparked concerns Greece would default and may eventually exit the 19-nation region.

An EU summit is scheduled on Monday is deemed as a make-or-a-break for Greece, especially as bank withdrawals in Greece leaped to nearly 4.2 billion euros in the week through June 19.

The Greek government has less than two weeks to repay a loan of 1.6 billion euros to the IMF, where any delay means default.

“It will be in default, it will be in arrears vis-a-vis the IMF on July 1,” IMF Managing Director Christine Lagarde said on June 18. “There is no grace period or two-month delay.”

Ahmed Mamdouh

Ahmed Mamdouh, Co-Founder and Head of English Fundamental Analysis at, with 7 years of experience in the financial markets. Mamdouh holds a Master’s Degree in Economics from The American University in Cairo and a Bachelor Degree in Economics from The Faculty of Economics and Political Science, Cairo University.

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