US blue-chip stocks turned in a solid gain on Friday on the back of good earnings reports to rack up a positive week, but feeble tech stocks left the NASDAQ with its second weekly loss in a row.
Stocks traded wildly again as debt-focused Greek and Italian politics kept investors on both sides of the Atlantic struggling for indicators or sentiment.
However, risk appetite emerged on Friday after both Athens and Rome replaced their respective prime ministers with economic technocrats and moved to implement austerity plans that markets see as crucial to stabilize the eurozone.
Helped by Friday’s big jump, the Dow Jones Industrial Average put on 1.4 percent for the week, to 12,153.68.
The S&P scratched out a 0.85 percent gain to 1,263.85, while the NASDAQ dipped 0.28 percent, ending at 2,678.75.
As Europe seemed to stabilize, stocks pushed upward more in the absence of substantial negative news on the economy, rather than the existence of good news on growth, traders said.
“It’s been bouncy so far in November,” Gina Martin of Wells Fargo Securities said. “That reflects the fact that we already had a nice run in October, suggesting that things may not get much worse.”
However, she added: “It is not an easy market to assess. We need confirmation and the market is just trading on a day-to-day basis based on the news. What concerns me is that the bond market is still not confirming the stock market’s positive trend.”
Michael James of Wedbush Morgan Securities said traders have not been able to keep their eyes off the European situation, but they are still pushed more by US company earnings and company news.
“It is impressive: Earnings continue to be the major driver here in the US to offset the concerns we continue to face from Europe,” he said, noting that volatility is almost assured although “the market continues to show resilience.”
With earnings reports drying up and if Greece and Italy settle their follow-through on austerity plan commitments, attention in the coming week will turn back to the US economy and another looming showdown on its debt and deficit.
Markets are likely to begin to react on whatever news comes out about the talks between Democrats and Republicans of the US Senate supercommittee on deficit reduction.
The rival sides are negotiating over how to slice US$1.2 trillion from the deficit over 10 years and are mandated to come up with a deal by Nov. 23.
If they cannot — and leaks from the talks suggest they are still deeply divided — by law the government will have to immediately slash the same amount from spending, a poison-pill requirement that could prompt another recession.
Investors will be looking for any news from the talks and the closer the deadline gets without signs of a compromise, the more markets are likely to shudder.
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