What matters most for markets' next move

You never know what really matters until it’s too late.

This is frequently true in life, and probably more often the case when it comes to markets.

New information and developing trends can’t be called either important or irrelevant for how markets might act. Indicators and influences drift in and out of favor, and it’s tough to handicap which will matter, how much, or when.

So with investors awaiting a series of known or hoped-for moments – a make-or-break juncture in the Greece talks, say, or a clear path for Fed policy – we’re left with a series of possibly, eventually important cross-market forces to puzzle over.

-First, inevitably, is Greece.

Exiting the weekend, markets concluded that some kind of extend-and-pretend deal between Greece and international creditors was nearing. Stocks in Europe and certain indexes of credit risk there priced in progress in one gulp, then have sat there waiting.

The fact that stocks in the U.S. didn’t garner much momentum from the perceived progress in this matter probably makes sense. It’s not as if the S&P 500 (^GSPC) has been observably weighed down by the Greek situation, so why should we get more than yesterday’s token 0.6% gain?

It’s hard to make the case that the stakes are all that high for most markets, including the U.S., after we’ve been living with the range of possibilities surrounding Greece and the euro for some five years.

-Next, is China.

It’s unclear whether it’s impressive or alarming the way the Chinese market’s gyrations fail to nudge U.S. stocks one way or the other.

The Shanghai (000001.ss) stock market soared higher and faster into its springtime high than the Nasdaq (^IXIC) did heading into its climactic peak in 1999 and 2000. Since then, the market has grown unstable and treacherous.

Last night, the market there dropped nearly 5%, before reversing higher to end with a 2% gain.

The popular view is that the authorities in China engineered a public speculative frenzy for equities to ease corporate reliance on new debt and stoke a wealth effect. This week it’s been reported that firmer economic numbers in China are hurting investor sentiment, as it suggests less central bank stimulus.

Sounds familiar, of course. Yet will the quicksilver action in this now-$10 trillion stock market remain a curiosity and sideshow? It’s one of the questions of that’ll be asked a lot on helicopters from Wall Street to the Hamptons this summer.

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-On to fresh economic data – which might or might not matter much or soon, given the holding pattern Fed policy has settled into for the moment.

It’s hard to believe that the market will choose to respond dramatically to today’s durable-goods or new home sales numbers, but we remain open to surprises.

If strong readings give any further oomph to the upward trend in Treasury yields, that would probably be the most relevant driver of the broad picture.

-Finally, the stock market’s own internal metabolic readings could at some point be seen as an important clue or catalyst.

While the recent leadership of small stocks and bank shares is encouraging to many market watchers, it’s noteworthy that even with the S&P 500 less than 1% from its record closing high, only about half of all the stocks in the index are above their 50-day average price.

It’s standard to view this lack of inclusiveness as a negative, showing a ragged, thinning group of stocks doing all the work. Yet it could also be seen as a healthy rotation among sectors, with many stocks sitting out and resetting their valuations lower for a while.

Mark Newton, technical strategist at Greywolf Partners, says it reflects resilience and he’s looking for a push by the S&P to a fresh high before long. But it’s also a reason to keep stocks on a short leash. He says if momentum doesn’t pick up and the market doesn’t broaden out in the next few weeks, this “would warn of a possible stalling out and larger reversal heading into the fall.”

In other words, the selective participation of stocks in the index’s ongoing rally doesn’t matter much yet – but it might before too long.

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