US stocks cut off a six-day losing streak on Friday, but sustaining the rebound and overcoming broader economic fears will require a solid run of second-quarter earnings reports over the coming week.
A better-than-feared quarter from JPMorgan Chase and a good report from Wells Fargo on Friday helped the turnaround, and on 1.5 percent to 1.6 percent gains for the day, the major indices were close to where they ended the previous Friday.
The Dow Jones Industrial Average managed to close the week up 4.62 points, or 0.04 percent, at 12,777.09, and the S&P 500 added 0.15 percent to 1,356.78.
The tech-heavy NASDAQ Composite finished 0.98 percent lower, at 2,908.47.
Yet Friday’s performance was not completely convincing to analysts.
With little sign that the economy is picking up, the markets did not even take their customary boost from hints that the US Federal Reserve was headed toward a new quantitative easing-type fiscal stimulus.
“Every time the Fed tries to slay economic weakness through security purchases or extending the maturity of its securities portfolio, the boost to the stock market and effect on the economy is less and less,” Wells Fargo Securities economists said in a client note. “Unfortunately, the underlying conditions creating this subpar economic environment have not been addressed and until they are, economic growth will remain sluggish.”
“This is the third soft patch since the recession ended and, so far, investors seem less prone to panic,” David Bianco of Deutsche Bank Securities said. “However, soft patch III is arguably worse than I and II as this time it includes Asia. Although valuations are supportive and should provide upside on mere recession absence, it is important to consider that soft patches can easily trigger corrections.”
Bianco pointed out that the S&P 500 lost 16 percent in 2010’s soft patch I and 19 percent in the lull of last year.
This puts the onus on companies turning in results. Alcoa — the first Dow member out of the gate — posted a small loss of US$2 million for the second quarter on Monday; after special items were taken away, though, the company scored gains better than analysts had forecast.
On Friday, it was banks that drove the rebound. JPMorgan, expected to reveal a devastating quarter because of losses on its botched London derivatives hedging operation, came in with a respectable US$5 billion profit, down 9 percent from a year earlier, but better than what some expected.
The coming week will see results from Citigroup, Goldman Sachs, Johnson & Johnson, Intel, Coca-Cola, Bank of America, eBay, American Express, Microsoft, Google and others.
Key economic news includes testimony to US Congress from US Fed Chairman Ben Bernanke and the release of the Fed’s Beige Book regional economy survey; both will be watched for signs of whether the Fed is heading to a new stimulus push.
In addition, the week will have retail sales figures for last month, consumer price index inflation for last month and data on industrial production and the housing market.