US STOCK investors will return to a tug of war between signs of domestic strength and overseas concerns this week as a batch of critical earnings reports look to add credence to the idea the economy is improving, while credit rating downgrades in Europe will keep that region’s difficulties in view.
Bank stocks will probably once again be a primary focus, as not only will European issues call the group's profit outlook into question, but many key names report results.
Equities have recently undergone a decoupling with respect to Europe’s sovereign debt crisis as signs of progress in the euro zone, along with improving US data, have pushed Wall Street higher on improved growth prospects. Financials have been a beneficiary of that rising tide, with Bank of America up about 20 per cent since the start of the year.
So far this month, the S&P 500 is up 2.5 per cent, while the Dow is up 1.7 per cent and the Nasdaq is up 4.1 per cent.
“We’re going to see more volatility in the weeks ahead with tension between earnings and Europe,” said Christopher Sheldon, the Boston-based director of investment strategy at BNY Mellon Wealth Management.
“We want to see Europe resolved, but there will continue to be ups and downs, and while earnings will continue to be relatively good, we do expect slowing compared with 2011.”
Earnings reports from numerous bellwethers could reinforce the growth story. Bank of America, General Electric, Intel, Goldman Sachs Group and Microsoft are among the names set to report.
Early reads have supported the idea that better times lie ahead. JPMorgan Chase said the domestic economy was strengthening even as its profit fell 23 per cent, while Alcoa rallied earlier in the week after giving a bullish outlook for the aluminium sector.