Stock market will jump or drop on Europe, FOMC
“The market will look for signal from Europes leaders that things are getting better. There’s a chance the market will stabilize next week,” said Terry Morris, senior equity manager at National Penn Investors Trust Company.
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Fears that the sovereign-debt crisis in Europe could tip Spain and Italy to the edge of default flared, along with rising yields on government bonds, indicating that investors had lost confidence in those economies. Higher yields mean higher borrowing costs, which increase the risk of a default.
“Concerns of contagion continue to be there. Earnings coming out of Europe this season have been weak,” said Wasif Latif, vice president of equity investments for USAA.
On top of looking toward European resolutions, investors await a string of retailer results next week, which could provide a snapshot of U.S. economic strength.
“The outlook in the reports could be very important. If the retailers say that things are OK, some of the pessimism will fade away and the market will react positively,” said Nick Kalivas, equities and fixed-income analyst at MF Global.
Among retailers slated to report earnings next week are Macy’s Inc. M +1.57% , Polo Ralph Lauren Corp. RL +3.53% , Nordstrom Inc. JWN +2.69% , Kohl’s Corp KSS -0.78% and J.C. Penney Co. JCP -1.12%
Also the Dow components Walt Disney Co. DIS -0.48% and Cisco Systems Inc. CSCO +0.81% are scheduled to release earnings. Read Cisco‘s earnings preview.
“Cisco will be interesting to watch because it sets the tone in the technology sector,” added Kalivas.
Next week will mostly wrap up second-quarter earnings season, which has shown positive trends with about 70% of companies in the S&P 500 Index SPX -0.06% beating estimates, according to S&P Valuation and Risk Strategies Research.
The growth rate for companies that have reported earnings so far is 18.4%, excluding Bank of America Corp. BAC -7.47% That’s above the 13.3% that was expected at the beginning of the second quarter, S&P wrote in a note. However, stocks have seemed to ignore the positive numbers coming out of corporations and have instead steered in one clear direction over the past week: down.
The S&P 500 Index SPX -0.06% dropped 7.2% over the week, the Dow Jones Industrial Average DJIA +0.54% shed 5.8% and the Nasdaq Composite COMP -0.94% fell 8.1%. For the Nasdaq and S&P 500, it was the worst week since the week ended Nov. 21, 2008 — just before the Fed launched its first round of quantitative easing.
“The market is poised to fear another 2008, [where] investors run for the exits on negative numbers,” said Greg Peterson, director of investment research at Ballentine Partners LLC.
The selloff in U.S stocks peaked Thursday, when the S&P 500 had its biggest drop since December 2008, spurred by weak macroeconomic data throughout the week and increasing concerns that the economy would slip into another recession. The S&P 500 and Nasdaq ended with slight losses Friday, while the Dow edged higher.