WALL STREET WEEK AHEAD
WALL Street enters this week on the cusp of a breakout in US stocks, but it will need another spate of convincing earnings reports to feed the rally that sprouted at the end of last week.
The markets endured malaise with poor economic data and downbeat testimony from Federal Reserve chairman Ben Bernanke on Wednesday, but turned decisively after a number of strong results pointed to better times ahead.
This week brings more results from bellwethers including Chevron, DuPont and Boeing. The trick will be turning the whipsaw action into accumulated gains – and hoped-for improvements in volume – that would signal an upturn in sentiment.
Investors have been forced to readjust their expectations for the economy, with data showing the pace of the recovery has gone from a sprint to a crawl.
It has also prompted a divisive argument over the likelihood of an encore recession. But if worries over a double dip are starting to be washed out of the market, an unexpected positive could fuel the market higher.
The broad S&P 500 also finds itself standing on top of a key resistance level that could turn into a floor for the market. The index closed at 1,102.66, just above the psychologically important 1,100 level, for the first time in a month. The level has been a hard one to hold and could buoy the market if the move is ultimately a decisive one.
With the S&P 500 edging out of official correction territory, trading down about 9 per cent from this year’s April high, analysts appear to have reconciled themselves to a slower recovery than they had hoped for. A correction is generally defined as a 10 per cent decline from the top.
Analysts will be hoping to see more earnings season cheer from industrials companies this week after a slew of manufacturers last week topped expectations and raised full-year profit forecasts.
General Electric added positive sentiment to the sector on Friday by raising its dividend 20 per cent, illustrating the conglomerate’s confidence it has put the worst of the recession behind it.
Options traders are betting on positive momentum for Boeing and DuPont following their earnings this week, said Andrea Kramer, an analyst at Schaeffer’s Investment Research.
Boeing’s 10-day call/put ratio shows investors have bought calls over puts in the open market at a faster clip only 6 per cent of the time during the past year. In DuPont, near-term traders have been more optimistically aligned toward the stock only 1 per cent of the time during the past year, according to Kramer.
The economy will remain the wild card, with the potential to pour cold water on investor enthusiasm and a round of top-tier economic data will be looked at to determine the strength of the economic recovery.