US stock investors head into this week with added worries about the sustainability of the recent rally and a desire to reduce risk, as shown by the stampede out of commodities on Thursday.
Stocks also will begin to lose the support they have enjoyed from stronger-than-expected earnings, with the first-quarter reporting period nearing an end.
The drop in commodities last week spilled over into commodity-related stocks, which were among the top performers in the last two quarters.
The Standard & Poor’s energy index ended the week down 7 per cent, its biggest weekly drop in a year, and the iShares Silver Trust suffered its worst week of outflows ever after heavy losses in the precious metal.
While the commodities rout may be done for now, many investors are still worried about the ramifications.
With first-quarter earnings and the Federal Reserve’s QE2 purchasing programme coming to an end, the stock market could be vulnerable to some weakness in the short term, said Natalie Trunow, senior vice president and chief investment officer of equities at Calvert Asset Management Company in Bethesda, Maryland.
In earnings news, a number of retailers are expected to report this week, including Macy’s, Nordstrom and Kohl’s. Earnings estimates have risen since the start of the reporting period. S&P 500 companies’ profits are now expected to have climbed 18 percent in the first quarter from the year before, up from an estimated 13 per cent rise at the start of April, according to Thomson Reuters data.