Wall Street heads into the week ahead hesitantly after a third week of gains following a flood of robust corporate earnings and a stronger outlook for the US economy.
Traders will also closely follow the US dollar after this weekend’s meeting of the G20 major rich and developed economies. The G20 meeting in South Korea comes amid a cloud of warnings of a “currency war” between debtor nations such as the US and export giants such as China.
For the week, the Dow Jones Industrial Average was up 0.63 percent to 11,132.56 points after it neared its highest level since September 2008 on Thursday.
The broader S&P 500 index rose 0.59 percent to 1,183.08 points, while the technology-rich NASDAQ composite index rose 0.43 percent to 2,49.39 points.
The Chicago Board of Options Exchange Volatility Index, or VIX, a gauge widely used to measure investors’ anxiety levels, fell 2.54 percent on Friday to close at 18.78, its lowest level since April. The VIX, which rose to near 50 in May, has been around or under 20 for the past two weeks.
This week saw a throng of market heavyweights in all major -sectors post overall strong quarterly earning results, boosting confidence in the economy. The beleaguered airline industry was given a shot in the arm after major US carriers, including the world’s largest, newly created United Continental, came out with strong quarterly profits and an upbeat outlook.
However, banks posted mixed results, as Bank of America found itself in new troubled waters after a group of institutional investors, including the New York Federal Reserve, sued the bank for billions for failing to repay bad mortgage debt loans.
The more upbeat economic outlook was reinforced after data showed a decline in weekly jobless claims and after the US Federal Reserve said the economy was growing at a “modest” pace.
The optimism, however, did not weaken confidence among investors that the Fed will renew major asset purchases in a bid to resuscitate the flagging economy, in what is known as quantitative easing (QE).
“The Federal Reserve is more worried of a slip into a disinflationary if not a deflationary environment and while the economic data points have stabilized, the inflationary measurements continue to show a moderation if not a decline in prices,” Miller Tabak analyst Dan Greenhaus said.
Friday’s first estimate of third-quarter GDP could play a key role in the central bank’s decision on easing measures. Most analysts expect a 2.4 percent expansion in economic output.
“The GDP number is going to be the big number. GDP estimates have steadily been revised upwards over the past weeks and where that number comes in will really help inflame the QE debate,” Greenhaus said. “If it comes in in line at around 2.25 percent, many people will wonder why the Fed deems QE so necessary when the economy seems to be expanding.”
Investors will also look closely at Tuesday’s consumer confidence index as consumers continue to worry about the weak economy and high unemployment.
More earnings reports from major companies, including Microsoft, Texas Instruments, ExxonMobil and Chevron, are also keenly awaited.
A key player in the past week’s trade was the US dollar, whose movement seemed to have a knock-on effect on the stock market.
The greenback has been on a steady but sharp decline in recent weeks as expectations for QE, which effectively means printing new money, grow.
The outcome of the monetary talks between the finance ministers of the G20 in South Korea could affect the dollar.
“The risk right now is that if there is a strong rally of the dollar it could have a negative effect on the market,” analyst Gregori Volokhine of Meeschaert New York said.
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