US stocks chalked up their best weekly gains in a year as investors keep a close eye on the second quarter corporate earnings season beginning tomorrow.
With fears of a double-dip recession receding, the blue-chip Dow Jones Industrial Average jumped 5.3 percent during the holiday-shortened week to end Friday at 10,198.03.
The tech-rich NASDAQ composite index gained 5 percent over the week at 2,196.45 while the Standard & Poor’s 500 index, a broader measure of the market, was up 5.4 percent to 1,077.96.
The market received a fillip from news that the number of Americans registering for unemployment benefits declined and that the IMF increased its world growth forecast.
“The new notion after this week is that the double-dip recession may not come, or if it does that it won’t be a repeat of The Great Recession,” Jon Ogg of 27/7 Wall St said.
However, he cautioned that there were still risks in stocks and earnings, as key government and private indicators showed that recovery in the world’s largest economy was slowing.
“While many companies will talk about currency and healthcare and other charges impacting the net this year, it is the top-line and the stability of revenues and spending that are likely to take precedent,” Ogg said.
Many sectors were already down 10 to 20 percent since the start of the last earnings season, he said.
The stock rally “could suddenly end” if earnings data were “even slightly disappointing,” said Frederic Dickson, chief market strategist of DA Davidson & Co.
“Our view is that we may see companies deliver mixed results versus analysts’ expectations in the upcoming earnings reporting season, with the market possibly having to digest more disappointments than seen last quarter given the sudden pause in the economy that developed in May and early June,” he said.
Analysts at IHS Global Insight, however, painted a positive earnings outlook.
“The corporate earnings momentum overall should remain solid, especially the year-over-year comparisons,” they said in a note to clients.
There are also some signals that the loan charge-offs in the banking sector might be close to cresting, they said.
“That rite of passage for the banking sector, when it comes, will be a watershed for the current cyclical recovery,” the analysts said.
Generally, the economic tea leaves the coming week will point to a pending mid-cycle slowdown in growth, as last month’s retail sales and industrial production are expected to peel back, the analysts said. Traders will also be closely monitoring the US Federal Reserve’s release on Wednesday of the minutes from last month’s meeting of its policy-making body.
There were no changes to interest rates at the meeting, but the Fed downgraded its assessment of the economy stating that financial market conditions were “less supportive” of economic growth amid the debt crisis in Europe, analysts at Charles Schwab & Co said.
As stocks jumped the past week, bonds plunged. The yield on the 10-year Treasury bond rose to 3.056 percent from 2.979 percent last week while that on the 30-year bond climbed to 4.040 percent from 3.941 previously. Bond prices and yields move in opposite directions.
US president-elect Donald Trump said he would “never say” if Washington is committed to defending Taiwan from China, but “I would prefer that they do not do it [ an attack],” adding that he has a “good relationship” with Chinese President Xi Jinping (習近平). “I never say because I have to negotiate things, right?” Trump said in an interview with NBC’s Meet the Press host Kristen Welker after saying he would not reveal his incoming administration’s stance on Taiwan’s defense in the event of an attack. Asked the question again, Trump, in a reference to China, said: “I would prefer that they
CROSS-STRAIT TENSIONS: MOFA demanded Beijing stop its military intimidation and ‘irrational behavior’ that endanger peace and stability in the Indo-Pacific region The Presidential Office yesterday called on China to stop all “provocative acts,” saying ongoing Chinese military activity in the nearby waters of Taiwan was a “blatant disruption” of the “status quo” of security and stability in the Indo-Pacific region. Defense officials said they have detected Chinese ships since Monday, both off Taiwan and farther out along the first island chain. They described the formations as two walls designed to demonstrate that the waters belong to China. The Ministry of National Defense yesterday said it had detected 53 military aircraft operating around the nation over the past 24 hours, as well
TECHNICAL LEAD: The US needs to boost its missile technology and build a communications network able to withstand hackers, Admiral Samuel Paparo said US Indo-Pacific Commander Admiral Samuel Paparo said the US is confident it could defeat China in the Pacific, but that technical advantage is shrinking, the Washington Post reported yesterday. Speaking at the Reagan Defense Forum on Saturday, Paparo said the US needs to maintain its technical lead over China by enhancing missile technology and building a communications network able to withstand hackers, the paper reported. Although the US is able to hit long-distance and difficult targets with its advanced cruise missile system, each launch costs more than US$1 million, he said. By contrast, drones, which are relatively cheap to build and develop, can
‘LAGGING BEHIND’: The NATO secretary-general called on democratic allies to be ‘clear-eyed’ about Beijing’s military buildup, urging them to boost military spending NATO Secretary-General Mark Rutte mentioning China’s bullying of Taiwan and its ambition to reshape the global order has significance during a time when authoritarian states are continuously increasing their aggression, the Ministry of Foreign Affairs (MOFA) said yesterday. In a speech at the Carnegie Europe think tank in Brussels on Thursday, Rutte said Beijing is bullying Taiwan and would start to “nibble” at Taiwan if Russia benefits from a post-invasion peace deal with Ukraine. He called on democratic allies to boost defense investments and also urged NATO members to increase defense spending in the face of growing military threats from Russia
RSS