A SPIKE in bond yields has brought Europe’s debt crisis back to the forefront last week, and traders will be anxiously watching the sovereign debt markets alongside corporate earnings in the week ahead.
US economic figures point to steady-but-uninspired growth, and stocks have backed off the sharp gains that recently pushed indexes to near four-year highs.
Stocks returned a bit to their winning track last week after strong earnings reports, and investors are waiting to see if more positive surprises from US companies are in store.
Nearly 180 of the S&P 500’s components will report earnings this week, and heading into a seasonally weak period, the market will need strong reports to offset the perception that there is no more room to rally.
“It is very encouraging that the majority of the news flow is about earnings rather than Europe,” said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management in New York.
Earnings are “alleviating our concerns about economic growth and making us feel more comfortable about our estimates for the year.”
This week will see earnings releases from several bellwethers including Apple, which reports after the market close tomorrow.
While the largest US company by market capitalisation has a history of blowout quarters, many say the company’s meteoric rise so far this year has created unrealistic expectations. For the first time since December 2008, the stock has fallen more than four per cent in back-to-back weeks.
Analysts see double-digit earnings growth for the S&P’s financial and consumer discretionary sectors in 2012, with industrials close behind. All three are cyclical growth areas, while sectors that tend to lead at the end of a growth cycle and before corrections are expected to slow.
Still, worries remain about Europe, where bond yields have been rising to ominous levels. And with investors skeptical of the S&P’s nearly 30-per cent surge since its October low, the “sell in May, go away” adage could prove prophetic.