"I do think the earnings gains are now stabilizing the market," said Steven Wieting, global chief strategist at Citi Private Bank. He said the slowdown in the global economy had been taken as a given. "There just wasn't this grand downturn … people are all focused on policy and not the nitty gritty of the data."
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Two global players—Caterpillar and 3M—saw their shares soar in earnings related gains Thursday. Caterpillar, often an indicator for global growth, raised its full-year guidance. After-the-bell results from Microsoft and Amazon.com may also influence the market Friday. Shares of Microsoft, a Dow component, rose in late trading after it reported better-than-expected revenue. But Amazon.com was crushed, losing more than 10 percent after reporting weaker revenue, a wider loss and warning on lower sales expectations.
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Earnings for the S&P 500 should be up more than 7 percent this quarter, based on those that reported and expected reports, according to Thomson Reuters. About 69 percent of S&P companies so far have beat on earnings per share, and 59 percent have beaten revenue estimates.
PMI data for China and the eurozone surprised to the upside Thursday. Those manufacturing reports were being closely watched since fears of a global slowdown have been unnerving markets, just as the Fed is expected to signal the end of its quantitative easing policy at next week's meeting. There have also been concerns Europe's economy is worsening, and that the European Central Bank will not be able to move forcefully enough to stave off recession.
"A little over a week ago, people were talking about recession, not relation. Now they're talking about reflation, not recession," said Michael Hartnett, Bank of America Merrill Lynch chief investment strategist.
In the past week, the S&P 500 has swiftly recovered much of the 9.8 percent loss made on an intraday basis between late September and Oct. 15. It is up 7.1 percent from the drop to 1,820, and up 3.4 percent week to date. As of Thursday, the S&P and Nasdaq were on track for the best week since January 2013. The S&P gained 1.2 percent Thursday to 1,950, and the Dow was up 1.3 percent to 16,677, while the Nasdaq was up 1.6 percent to 4,452.
Hartnett said the end of Fed easing, which has been ruffling markets, will not be a problem as long as the economy grows at a strong enough pace.
"The Fed just needs the economy to do OK, to just finish what it's doing, and the bears will have a tough time if that's the case. The Fed is dovish and all other things being equal, that is helpful to the market," he said. The market will be fine "only if the economy is growing 3 percent plus. If the economy is growing at 2 percent, it's not OK with it. it's that simple."
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Bank stress tests results, expected for European banks Sunday could be a short-term negative for markets. "Long-term, no. They have to happen. They have to create a pricing mechanism for the assets of the European banks, and only once banks are able to reduce their assets is the market going to feel comfortable that European banks will support the European economy," Hartnett said.
He said when the market went down sharply last week, investors were caught in investments they should not have been in, with the dollar moving higher and oil going sharply lower.