Economic data will dictate how US market moves: Solaris AMC

In an interview to CNBC-TV18, Tim Ghriskey, CIO, Solaris Asset Management says June is a big month for news coming out of Europe and Greece in particular.

With a lack of fundamental news for US markets to move on, he sees very limited downside here given the very favourable valuations of the US market and the fact that the economic data certainly isn’t dropping off a cliff at all.
“It has just been a little bit soft but those are all issues that we are watching very carefully and they are going to dictate what we are going to see ahead,” he adds. Below is an edited transcript of his interview. Watch the accompanying video for more. Q: We seem to have had a fairly alright opening to the week. There hasn’t been any adverse event. What's causing this fresh bout of fear today?
A: You are right. There really hasn’t been any new fundamental news impacting the market and there was I think some positives given the rebound last week which we looked at as opportunistic buying given the low prices in the market after this correction and also the amount of cash that’s sitting on the sidelines. Today, it’s risk-off again and there were some pretty ugly headlines this morning that sent the US markets down and those are primarily Spain banking and sovereign crisis and China throwing some cold water on the odds of a big stimulus plan.
Certainly the pending home sales number, a big negative surprise and that certainly did not help the housing sector and the concept that the US economy is recovering strongly. So there is broad based selling today, there is very little green on the screen and we are seeing energy in particular get hit badly with crude oil down over 3%. Q: What do you make of the move to the 10-year bond which is considered amongst the safest havens and the drop that we have seen in the 10-year yield down now below 1.61%? Does that give you an indication of how much lower this market could go over the next few days?
A: The 10-year yield is certainly hitting another record low here, very sharp sell-off in yields, obviously prices going up. So those institutions that have exposure to the 10-year or to any US treasury instrument are certainly enjoying today and enjoying this risk-off move. We think what is really happening in the 10-year is that it’s a heavily shorted instrument and you are seeing a lot of short covering there and that’s why you are seeing such a strong reaction here in the 10-year and across the treasury curve.
I would be cautious that this indicates that the equity market has significant downside. The equity market is really going to live and die here on US economic data and also news coming out of Europe. Q: Let’s assume we aren’t going to get any sense of finality as to what happens to Greece till after the elections that take place later next month. There isn’t anything else expected on the horizon between now and then except for continuing news on the Spanish banking system. In the US, the data has been looking weaker but not substantially worse. What do you make of the fundamental triggers that this market is going to move on?
A: You are absolutely right. June is a big month for news coming out of Europe and Greece in particular. The US economic situation is a bit fragile here which is certainly a concern and everybody is sitting here waiting and watching to see what happens in terms of the US data. That is really going to dictate what happens to the US equity markets.
We see a very limited downside here given the very favourable valuations of the US market and the fact that the economic data certainly isn’t dropping off a cliff at all. It has just been a little bit soft but those are all issues that we are watching very carefully and they are going to dictate what we are going to see ahead.