Market Insider
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EDITOR
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Week Ahead: Surprise Surprise—The Market's Found Something to Cheer About
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CNBC Executive Editor
Whither Markets
Stocks saw their second best week of the year in the past week, with the Dow up 3.2 percent at 10,424; the S&P 500 up 3.6 percent at 1102, and the Nasdaq, up 4.2 percent at 2269. The Russell 2000 was up 6.6 percent, and is now up 4.4 percent for the year. The Nasdaq is flat for the year, and the Dow is down just 0.03 percent. The S&P is still down about a percent year-to-date, but it crossed above the important 1100 level Friday.
Industrial stocks were the best performers of the week, lifted by positive earnings news. The group was up 7.2 percent, followed by materials, up 7 percent, and consumer discretionary, up 5 percent. Treasurys saw 2-year yields touch a record low this past week, and the 10-year stayed under 3 percent but touched 2.998 Friday. As stocks climbed Thursday and Friday, Treasury yields climbed as prices fell.
"Right now, we're allowing this stock market to trade on 12 times earnings with all of the much stronger earnings and a sub-3 percent Treasury," said Wells Capital Management chief investment strategist James Paulsen. In order for the market to move out of its range, Paulsen said there has to be good news on jobs.
"I think you need a good piece on jobs, but if we get that, it could be violent. You could have a huge movement in stock prices and bond prices," he said.
Knapp said the stock market though could stay on an upward trajectory for a little while longer, but he expects it to stumble by August as investors shift their focus to the November mid-term election and fiscal worries. He also expects next year's earnings to be a concern since the street estimates are currently too high.
"There's probably scope to rally a little further to 1125 to 1150, at the most, but we won't go above the old highs," he said. As he watched Fed Chairman Ben Bernanke testify before Congress in the past week, Knapp said he noticed that about half of the questions directed at the Fed chairman were about the deficit.
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Thomas Northcut | Photodisc | Getty Images |
Even with Friday's stock market rally, there was clear disappointment about the severity of the European bank tests, which resulted in requiring 3.8 billion euros of new capital to be raised. Just seven of 91 banks failed the test.
"My point of view on this is the market reaction has led people to the wrong conclusion on this. It was not good. I don't think it's enough to cause the market to go down because the growth outlook has improved enough in both Europe and the U.S.," said Knapp, adding the street expected 80 to 100 billion euros to be required. He said the Europeans permitted a lower quality of capital to be reported in their core Tier 1 capital, allowing banks to escape large shortfalls.
"They just decided to punt on what type of capital to use. To me, it's just not enough of a test," he said.
Earnings Central
Besides oil companies, there are tech, consumer products, drug, industrial and financial companies reporting. On Monday, Reinsurance Group of America, Alcon, Beckman Coulter, Legg Mason, Masco and Transatlantic Holdings report.
BP reports Tuesday and it will of course be watched for impact from the Gulf oil spill. DuPont reports Tuesday morning, as do Cummins, Bemis, Deutsche Bank, Ecolab, SAP, Nasdaq OMX, Lockheed Martin, Occidental Petroleum, U.S. Steel, Valero Energy, Teva Pharma, and Under Armour.
After the bell reports Tuesday are expected from Aetna, Aflac, Boston Properties, Norfolk Southern, Nalco, DreamWorks and CB Richard Ellis.
Boeing, Comcast, ConocoPhillips [COP
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], Arcelor Mittal, Corning, Newmont Mining, Southern Co, Sprint Nextel, WellPoint, General Dynamics, Hess, Martha Stewart and Wyndham Worldwide report Wednesday, before the opening bell. Visa [V
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], Akamai, BMC Software, Assurant, FMC, Lincoln National, Citrix, Symantec, Varian and Vertex Pharmaceutical report after the close that day.
Thursday's releases include Exxon Mobil, Royal Dutch Shell, Sanofi-Aventis, Avon Products, Barrick Gold, CME Group, Colgate-Palmolive, Covidien, Snapple, Goodrich, Interpublic, Kellogg, Mack Cali Realty, Moody's, Motorola, Mylan Labs, Noble Energy, Nissan, Potash, Raytheon, Sony, Siemens, Southwest Air, Tyco, Williams Cos and Waste Management. Amgen, Genworth Financial, McAfee, MetLife and Expedia report in the afternoon on Thursday.
Chevron [CVX
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] and Merck [MRK
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] are the big names Friday morning. Also reporting are Fortune Brands, Newell Rubbermaid, Weyerhaeuser, Simon Properties and Borg Warner.
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