US earnings likely to push stocks higher

WITH earnings momentum on the rise, the S&P 500 seems to have few hurdles ahead as it continues to power forward, its all-time high a not-so-distant goal.

The US equity benchmark closed last week at a new five-year high on strong housing and labour market data and a string of earnings that beat lowered expectations.

Sector indexes in transportation, banks and housing last week hit historic or multi-year highs as well.

Michael Yoshikami, chief executive at Destination Wealth Management in Walnut Creek, California, said the key earnings to watch for this week will come from cyclical companies. United Technologies reports on Wednesday while Honeywell is due to report on Friday.

“Those kind of numbers will tell you the trajectory the economy is taking,” Yoshikami said.

Major technology companies will also report this week, but the bar for the sector has been lowered even further.

Chipmakers like Advanced Micro Devices, which is due tomorrow, are expected to underperform as PC sales shrink. AMD shares fell more than 10 per cent on Friday after disappointing results from its larger competitor, Intel. Still, a chipmaker sector index posted its highest weekly close since last April.

Following a recent underperformance, an upside surprise from Apple on Wednesday could trigger a return to the stock.

Other major companies reporting this week include Google, IBM, Johnson & Johnson and DuPont tomorrow, Microsoft and 3M on Thursday and Procter & Gamble on Friday.

Perhaps the strongest support for equities will come from the flow of cash from fixed income funds to stocks. The recent piling into stock funds – $11.3bn (£7.1bn) in the past two weeks, the most since 2000 – indicates a riskier approach to investing from retail investors looking for yield.

Housing stocks, already at a 5-1/2-year high, could get an additional bump this week as investors eye data expected to support the market’s perception that housing is the sluggish US economy’s bright spot.