With the long Memorial Day holiday weekend behind us, the final week of May is set to be an exciting one as traders contend with a number of key catalysts.
Tensions are high as stocks are near record levels but looking fragile amid light trading volume and narrow breadth measures.
All of this comes as Wall Street remains on edge about the specter of interest rate hikes from the Federal Reserve as the economic data remains troublingly soft. On Friday, Fed Chair Janet Yellen confirmed that they are still on track to raise rates this year amid signs of wage gains.
For one, the economic calendar is full. Tuesday will bring the April durable goods orders, new home sales, and consumer confidence reports. Durable goods are expected to post a small decline on weakness in aircraft orders due to cancellations. Home sales and confidence are expected to post small sequential gains.
Friday will feature the government's second estimate of first-quarter GDP growth. The economy's slump at the beginning of the year is expected to deepen as a combination of cautious consumers and a severe winter chilled growth. The initial estimate was a seasonally-adjusted annual growth rate of 0.2 percent that is expected to be downwardly revised to a -0.8 percent contraction.
The second quarter so far isn't holding out much hope of a quick bounce back either: The Atlanta Fed's GDPNow real-time tracking estimate is running at just 0.2 percent for Q2.
Second, market technicals are quite weak.
Jason Goepfert at SentimenTrader notes that while the S&P 500 pushed to a new all-time closing high last Thursday, only 10 percent of its component stocks were trading at even a four-week high; and nearly 3 percent of its components were trading at a four-week low. The net of 7 percent is one of the weakest readings of the past 25 years.
Sentiment and valuation measures are also extended, suggesting stocks are expensive on both relative and absolute measures as investors are ill prepared for any meaningful pullback.
And finally, the big wild card is the ongoing bailout negotiations between Greece and its lenders. Comments from Greek officials -- including the interior minister and the parliamentary speaker -- suggest that the country will be unable to make its $1.8 billion debt payment to the International Monetary Fund on June 5 without fresh rescue funding.
Failure to make this payment could trigger a bank run and eventual "Grexit" from the euro, should the European Central Bank tighten lending standards to Greek financial institutions, as is widely expected. The long, multi-year drama on the Mediterranean appears to be entering its final act.
All of this is coming as stocks push deeper into the weakest time of the year on a seasonal basis -- "Sell in May" and all that, which I recently discussed -- as summer approaches.