STOCKS have strayed from their recent link to euro moves, and the start of US corporate earnings next week could help shift investor focus back to US fundamentals from Europe.
Stocks have traded in line with the euro over the autumn, with both experiencing sharp swings on headlines from the Eurozone.
That trend may be changing, and it comes just as investors get their first glimpse at fourth-quarter US earnings.
Aluminum company Alcoa is expected to report today after the closing bell, unofficially starting the reporting period for US corporations. JPMorgan Chase is due to report on Friday, but the bulk of Standard & Poor’s 500 earnings will come in the weeks ahead.
“I think this month we’re probably going to break away and see the pattern of US market trade on US fundamentals rather than in reaction to the euro movement,” said Fred Dickson, chief market strategist, D.A. Davidson & Co. in Lake Oswego, Oregon.
“I think we’re in a time-out period for that (dollar) carry trade, and it will stay a time out for a while.”
The correlation between S&P 500 E-mini futures and the euro, which moved in near lockstep in the fall, has receded. A 22-day moving average of the correlation shows almost no relation between the movements of the two assets.
While the corporate results will be searched for evidence of the European crisis’ impact on overseas sales, they should also bring back more of a focus on what’s happening in the United States, where the economy has been northward bound.
Friday’s US jobs reports was the latest data to suggest the recovery is gathering momentum, with non-farm payrolls rising in December and the jobless rate dropping to a near three-year low of 8.5 per cent.
S&P 500 fourth-quarter earnings are expected to have risen 7.8 per cent from a year ago, according to Thomson Reuters data. But that number is down from a 1 July forecast for growth of 17.6 per cent in the quarter.
“We’re going to need good, strong positive news on earnings to lift all three of the market averages out of their trading ranges,” Dickson said. “They’re bumping into some overhead resistance, and it’s going to take fundamental news to do it.”
The S&P 500 ended virtually unchanged for 2011, even though most strategists had expected gains for the year.
The index has been unable to pierce through 1,285, the closing high set in late October.
Stocks ended with gains for the first trading week of the year, as the mostly upbeat US economic data offset lingering worries about the Euro zone. The Dow Jones industrial average was up 1.2 per cent for the week, the Standard & Poor’s 500 was up 1.6 per cent and the Nasdaq was up 2.7 per cent.
This week’s economic calendar includes data on US retail sales and consumer sentiment.
Even with a focus on earnings, investors will be watching Italian and Spanish government bond sales this week. Both are seen as the year’s first big funding tests for struggling Euro zone countries. Italy is to pay out €100bn (£82bn) in bond coupons and redemptions in the first four months of 2012.