By Corrie Driebusch
U.S. stocks traded around the flat line Monday as investors
largely brushed off news that Greek citizens resoundingly rejected
creditors' conditions for further financial aid.
The Dow Jones Industrial Average fell 23 points, or 0.1%, to
17707 after earlier being down by as much as 166 points. The
S&P 500 dropped 1.7 points, or 0.1%, to 2075 and the Nasdaq
Composite was down 1.3 points at 5008.
On Sunday, more than 61% of Greek citizens voted "no" in
Sunday's referendum on the terms for a bailout that included
pension cuts, tax increases and other measures. The referendum was
on whether to accept austerity terms demanded by the country's
creditors in exchange for further aid. The "no" vote appeared to
increase the likelihood that Greece may eventually exit the
eurozone.
Entering the weekend, many investors anticipated the result of
the Greek referendum would be a "yes" vote, which European leaders
had encouraged.
"What most banks and research shops were predicting was that the
measure would pass, Greece would take some of its tough medicine
and move on," said Erik Wytenus, global investment strategist at
J.P. Morgan Private Bank. "What's more surprising is the muted
market reaction."
Traders said Monday that investors instead appeared to be taking
advantage of recent declines in the broader market to scoop up
companies they like at lower prices. Over the last two weeks
through Thursday's close, the Dow industrials and the S&P 500
lost 1.6%.
"We're looking at what is likely going to be long-term stagnant
growth domestically and globally," said Justin Wiggs, managing
director in equity trading at broker Stifel Nicolaus. "Investors
are looking for growth opportunities, such as smaller companies,
and the leader in that group has been biotech."
On Monday, the Russell 2000 index, the benchmark index for small
companies, rose 0.1%. Among companies in the Russell 2000, growth
companies, typically those posting sharp increases in revenue,
gained 0.2%, while value companies, or those considered to be
trading at a price below the company's worth, fell 0.1%.
Stocks and bonds in Europe fell on Monday, but the decline was
fairly subdued. The Stoxx Europe 600 lost 0.9%, while Germany's DAX
fell 1.1% and France's CAC-40 dropped 1.5%. The euro initially
tumbled before paring losses, recently trading 0.8% lower against
the dollar at $1.1048.
Investors bought U.S. Treasurys, viewed as a haven market, on
Monday, pushing down the yield on the 10-year note to 2.328% from
2.393% Thursday. Bond yields fall as prices rise.
Earlier Monday, Greece's confrontational finance minister Yanis
Varoufakis resigned, which many investors viewed as a positive sign
for negotiations with creditors. "The prospect for a deal is better
now that he's out," said Mr. Wytenus. "That's helping some of this
market reaction."
Separately, volatility in Asian markets spilled over to U.S.
markets. Stocks in Hong Kong tumbled, with the Hang Seng Index
notching its worst one-day performance since 2012, as Beijing took
steps to halt the recent selloff in stocks, including encouraging
stock buying with borrowed money.
"It's a dangerous combination today," said Jerry Braakman, chief
investment officer of First American Trust, which manages $1.1
billion, referring to the news out of Greece and China. To him, the
three-week selloff in Chinese stocks is more worrying than
developments in Europe.
"When you look at the proportion of revenue derived from China
for U.S. firms it can be 30%, so if that economy is struggling it
will be a much bigger story for the U.S. stock market than Greece,"
Mr. Braakman said. "Is it enough to derail the U.S. stock market?
Not necessarily. But I think it will increase volatility and
turmoil for the U.S. investor."
Worries about China's stock markets contributed to the price of
oil falling to a three-month low. Crude oil fell 4.8% to $54.18 a
barrel.
The drama surrounding the Greek debt crisis has dominated U.S.
stock trading over the past several weeks. Two weeks ago, on June
22, stocks around the globe climbed as negotiations between Greece
and its international creditors appeared to be moving closer to a
positive conclusion. However, a week later, on June 29, stocks
tumbled as talks broke down. The Greek stock market was closed for
the week ahead of the referendum on Sunday, and there aren't plans
to reopen it until Tuesday at the earliest.
Analysts have said that even with the recent tumult in global
markets, they expect stocks to hold up better than they did in 2011
and 2012, when fears of a Greece bankruptcy swelled into worry
about the financial stability of other struggling European
economies, such as Spain and Portugal.
Unlike several years ago, little of Greece's government debt is
currently held by banks and private investors outside of the
country, which lessens the likelihood of a ripple effect of
losses.
After the developments over the weekend, analysts said the
probability that Greece eventually exits the eurozone is now much
higher. However, they said with Europe's improving economy, they
remain fairly upbeat on the region.
Mr. Wytenus said he is telling clients to keep calm, look
through all the geopolitical noise, and buy European stocks.
"No matter what happens with Greek negotiations this week, the
economic situation on the ground is much more improved than in 2012
when people were concerned if Greece went out, it would create a
domino effect," he said. "Even if we were to see further weakness
throughout the course of the week, we'd continue to advocate for
clients to buy Europe."
Write to Corrie Driebusch at corrie.driebusch@wsj.com