Profits still hold key; Greece's debt
Wall Street is heading into another earnings blitz this week and the prospects of strong results from bellwethers like Caterpillar Inc and 3M Co should propel indexes to new recovery highs.
Another round of strong earnings would be more evidence that the U.S. economic recovery is gaining strength and may help temper some of the risk associated with Greece's debt woes after Athens formally requested aid from the European Union and the International Monetary Fund on Friday.
Of the 172 S&P 500 companies that have already reported earnings for the quarter, some 83 percent have beaten analyst expectations, well above the 61 percent in a typical quarter and above the 79 percent record set in the third quarter of 2009, according to Thomson Reuters data.
Fundamentals are continuing to look great, earnings look great. But some market players continue to underestimate how strong this economy is. They continue to fight it, particularly in the retail and consumer sectors, said Paul Zemsky, head of asset allocation at ING Investment Management in New York.
We continue to think that the economy is going to perform better than consensus. We have turned the corner on job growth.
Although there are other events in the coming week that could play on sentiment, earnings are still seen as the driving factor -- unless other events offer surprises.
The Federal Reserve also has a two-day policy meeting this week, but analysts widely expect the central bank will keep interest rates near zero and stick to its pledge of low rates for an extended period to foster the recovery.
And top executives from Goldman Sachs are scheduled to testify before a U.S. Senate panel of on Tuesday.
The testimony of Goldman Sachs Chief Executive Lloyd Blankfein and the bond trader at the center of a high-profile civil fraud case promises to be a major spectacle after the Securities and Exchange Commission leveled charges against the bank and the trader, Fabrice Tourre, a week ago.
The Senate Permanent Subcommittee on Investigations has said it was using Goldman to probe the role of investment banks in the securitization of mortgage products and the development, marketing and trading of products such as collateralized debt obligations.
Although the hearing will command attention and put Goldman in the spotlight, corporate earnings are expected to support evidence of the economic recovery and drive the market higher.
Looking for continued economic improvement and first-quarter corporate reports is more tangible in terms of gleaning the strength and direction of this recovery as opposed to the noise of Goldman and financial reform, said Phil Orlando, chief equity market strategist at Federated Investors in New York.
Besides Caterpillar and 3M Co, other earnings highlights this week will include U.S. Steel Corp ; chipmaker Texas Instruments ; chemical maker DuPont
Energy heavyweights Exxon Mobil Corp and Chevron Corp are also on the earnings scoreboard. For a full earnings diary, see
There are also plenty of economic indicators to wade through, including the government's advance reading on first-quarter gross domestic product on Friday.
I think you could see some folks throwing in the towel right there, realizing that this economy is recovering and growing a lot more strongly than the perma-bears believe, Orlando said on the upcoming GDP report.
A Reuters poll of economists forecast GDP, the broadest measure of the U.S. economy, grew at an annualized 3.4 percent rate in the first quarter, after a 5.6 percent increase in the prior quarter.
In addition, reports on consumer sentiment and consumer confidence are due on Tuesday and on Friday, respectively. For a full economic diary, see
One big question facing investors in the coming week on Greece is whether its formal request for EU and IMF aid will calm fears of default. The clamor among investors for something to be done about Greece's debt had reached a crescendo before Prime Minister George Papandreou announced on Friday he was asking for aid.
U.S. stocks, nonetheless, have shrugged off worries over Greece, propelling both the benchmark S&P 500 <.SPX> and the Dow Jones industrial average <.DJI> to 19-month highs.
Technically, the S&P 500 <.SPX>, up 80 percent since the March 2009 bottom, has spent the past week building a base in the 1,200 area.
The S&P on Friday close at 1,217.28 points.
According to John Schlitz, chief U.S. market technician at Instinet in New York, the S&P 500's next upside target is the 1,225-1,235 area. We could be testing those levels soon if the earnings and macro data continue to pleasantly surprise, he said.
(Additional reporting by Leah Schnurr; Editing by Leslie Adler and Maureen Bavdek)
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