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Investors Watch GE, McDonald’s and Europe

Two titans of corporate America — General Electric and McDonald’s — report earnings Friday, and investors will focus on what they have to say about the global economy as U.S. data looks increasingly weak.

NYSE trader
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NYSE trader

GE , part owner of CNBC, is viewed as an economic bellwether of sorts, since its diversified businesses span the globe. McDonald’s , with restaurants worldwide, is also a barometer for economic activity. Traders are watching to see if Europe’s weakening economy has taken a toll, or whether a Chinese slowdown is a factor.

Markets will also focus on some of Thursday’s names, like Chipotle and Microsoft , which beat expectations and rose in after-hours trading. Besides GE and McDonald’s, Friday’s reports include Honeywell, Schlumberger, Ingersoll-Rand, Johnson Controls, Kimberly-Clark, Under Armour, American Electric and Royal Caribbean.

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Stocks on Thursday seesawed, but were mostly in negative territory as a number of factors weighed on investors. The Dow ended down 68 at 12,694, while the S&P 500 fell 8 to 1376. Nasdaq was down 23 at 3007. Market leader, Apple , also again under pressure, lost 3.4 percent.

Europe was once more a factor, even though Spain’s 2.5 billion euro bond auction saw support. Yields, however, rose and the Spanish 10-year finished the day yielding close to 6 percent.

Rumors that France’s AAA rating would be downgraded rattled investors early in the day, but Moody’s had reaffirmed that it was not expecting to take imminent action. Investors continued to focus on the French presidential election, and the strong possibility that President Nicolas Sarkozy may not win re-election in the second round of voting in May. The first round of voting is on Sunday, and he is expected to emerge with a strong rival in socialist candidate Francois Hollande.

“The polls show that he’s not going to win so I think the markets are adjusting to that,” said John Briggs, senior Treasury strategist at RBS. Hollande is in favor of raising taxes on the wealthy. He is also not seen as an easy ally for German leader Angela Merkel and does not favor of the fiscal compact.

The yield on the U.S. 10-year fell to 1.94 percent, as buyers supported U.S. Treasurys. The dollar was slightly higher against a basket of currencies, but it was weaker against the euro, which held above 1.31. Comments from IMF managing director Chirstine Lagarde that member countries had pledged $320 billion in additional resources supported the euro.

Weak U.S. economic data also weighed on risk assets and sent buyers into Treasurys. Weekly jobless claims were a surprising 386,000, a stubbornly high number for a second week in a row and the highest number in nearly four months. Existing home sales fell 2.6 percent, to an annual rate of 4.48 million, also disappointing.

Economists said some of the creep higher in claims could be due to seasonality, around the Easter holiday. There is also the theory that some of the weakness in economic data is the result of warmer winter weather having pulled some activity forward, and now there is payback, as there was in the surprisingly weak March jobs report.

“One month’s data is not going to tell you if it’s a blip or a payback. That’s an uncertainty that’s moved in to the second quarter,” said Briggs.

“With Europe ramping back up, investors are waiting to get some further information, whether it’s on Europe or it’s whether this weather thing is true. Maybe the next payrolls will give us more information, on whether it’s payback. We really can’t make that assessment yet,” Briggs said. “Europe on balance is negative, and Chinese growth numbers, on the margin, are coming in weaker. All of that points to a little bit better environment for Treasurys.”

Earnings Central

Corporate earnings, for the most part, are coming in better than expected. Sam Stovall, chief equity strategist for Standard and Poor’s Capital IQ, said that earnings growth was expected to be up less than one percent, but now that companies are topping expectations, growth is at 2.6 percent. He also said 82 percent of the S&P 500 companies that have reported so far have beaten estimates.

“I would tend to say investors right now would be happy if (stocks) could just tread water for awhile, and catch their breath, before they move higher. Valuations don’t look extended in my opinion,” Stovall said.

Technicians are watching to see if the S&P 500 will close between 1,365 and 1,370.

“That would put us in motion for at least a retest of the 1,357 low from April 10, and then below that there is the major support that everyone is talking about between 1,320 and 1,340,” said Scott Redler of T3Live.com.

Paul LaRosa, chief market technician at Maxim Group said he believes the rally that started at the beginning of the year is not over. “My gut is we’re still ok. I definitely don’t see evidence of a major top at this point. The underpinnings are too good. We saw the writing on the wall back in May, 2011… I don’t see that type of deterioration right now, to make a call that this market rally is over,” he said.

Follow Patti Domm on Twitter: @pattidomm

Questions? Comments? Email us at marketinsider@cnbc.com

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Featured

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Senior Commodities Correspondent and Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.