By Kate Gibson
With no quick fix in sight to the sovereign debt issues plaguing
Europe and its common currency, the U.S. stock market's volatile
ride is unlikely to abate in the days ahead.
"Europe is important. They import a lot, and they export a lot,
so they have a lot of influence over what's going on around the
world," said Owen Fitzpatrick, head of U.S. equity group at
Deutsche Bank.
Underlining the importance of Europe's troubles, Jean-Claude
Trichet, the president of the European Central Bank, said Europe's
economy has been facing its biggest crisis since World War II or
possibly World War I, the German weekly Der Spiegel reported on its
Website Saturday.
On Friday, the major U.S. stock indexes fell sharply for a
second consecutive session, yet still managed to halt a weekly
losing streak before it hit a third week, as investors tracked the
euro's decline on worries about Europe's debt crisis, with Wall
Street detouring around reports illustrating slow but steady
improvement in the U.S. economy.
Making a triple-digit move for an 11th session out of the last
14, the Dow Jones Industrial Average (DJI) fell 162.79 points, or
1.5%, to finish at 10,620.16, leaving it up 2.3% for the week after
a two-week slide.
"It's the global growth story and concerns this is going to
dampen the global recovery and increase credit risk. There's a big
question mark around how much damage is this going to do to an
economy that is just starting to chug along," said Fitzpatrick.
And, while the current earnings season is mostly over, the
coming days will bring results from a collection of big names,
including results slated for Tuesday from three Dow components --
Wal-Mart Stores Inc. (WMT), Home Depot Inc. (HD) and
Hewlett-Packard Co. (HPQ) .
Twenty-three S&P 500 companies are expected to report
earnings in the days ahead, including home-improvement retailer
Lowe's Companies Inc. (LOW) on Monday, and tax preparation software
firm Intuit Inc. (INTU) on Thursday.
The S&P 500 Index (SPX) on Friday declined 21.76 points, or
1.9%, to 1,135.68, up 2.2% from the week-ago close.
Results are also on tap from the technology sector, including
Agilent Technologies Inc. (A) on Monday and Analog Devices Inc.
(ADI) the next day. Computer Sciences Corp. (CSC) reports on
Thursday, as does tax preparation software firm Intuit Inc.
(INTU).
Thursday also brings results from video game publisher Gamestop
Corp. (GME), shares of which were hit at the end of the last week
after data pointed to a sharp April drop in sales of video games.
.
The coming week also features results from retailers, including
Abercrombie & Fitch (ANF) on Tuesday and office-supplies
retailer Staples Inc. (SPLS) on Thursday.
Muted outlooks from retailers that reported in the past week
left some questioning recent signs of strength in consumer
spending, even as J.C. Penney Co. (JCP) reported robust gains in
sales and profits, a theme echoed by the likes of Macy's Inc. (M)
and Kohl's Corp. (KSS).
Blended share-weighted earnings for the S&P 500 for the
first quarter stood at $183.3 as of Friday, above the prior week's
$182.4 billion, according to research compiled by Thomson
Reuters.
The Nasdaq Composite Index (RIXF) on Friday shed 47.51 points,
or 2%, to 2,346.85, leaving it 3.6% higher from last Friday's
finish.
Week of contrasts
"We just came off a very steep decline in the market associated
with credit, and all the news came on the weekend. So we're back to
that pattern of lightening up on stocks before the weekend," said
Fitzpatrick of Friday's fall.
The wild swings illustrate the level of uncertainty in the
market, and the skepticism or optimism that comes into play as
various bank officials or heads of state comment on the rescue
package.
"Last week, the stock market was a study in contrast. Through
Wednesday stocks were higher by 5.5% as investors reacted to the
European Union and International Monetary Fund's announcement that
they had developed and were implementing a plan to support the euro
zone countries that were experiencing deficit issues," wrote Robert
Pavlik, chief market strategist at Banyan Partners.
"However on Thursday short-term concerns began creeping back
into the market over how easily these funds could be disbursed to
the needy countries and whether those countries could successfully
execute austerity measures," Pavlik noted.
Wall Street's recent gyrations are akin to those seen in the
early stages of the U.S. recovery, before "people got comfortable
that the credit crisis was over," said Fitzpatrick.
"The good news is we've gone through this in the recent past, so
we have a game plan," said Fitzpatrick, who believes what the
European Union has outlined in its near $1 trillion rescue package
really should help, given it's large enough to some $700 billion in
debt off the balance sheets of large European banks.
Companies with exposure to the currency, translated back into a
dollar that's much stronger, are likely bring revisions related to
the rise in the dollar related to the euro.
"We will see profit warnings coming out from companies around
the globe. Analysts are making adjustments, and we will see profit
warnings coming out from companies around the globe," said
Fitzpatrick.
"I don't think anyone had the euro's lows in the models," he
added of the euro's slide against the U.S. dollar, which on Friday
had it sliding to its lowest level seen since October 2008.
In addition to Europe, Wall Street will be tracking financial
reform legislation, including a measure approved by the Senate to
limit fees on debit-card transactions, which involves processing
transactions but not taking on risk.
"That's why they left credit cards off the table. They don't
want a situation where people are pulling back on credit, they want
to encourage people to spend money," said Fitzpatrick. .
The economic docket in the days ahead includes producer price
data for April and reports on the housing market, along with a
measure of inflation.