US financial markets took a breather this week after enduring weeks of intense haggling throughout the debate on the “fiscal cliff.”
The major indices closed the week out higher, but only modestly so, as investors seemed to be searching for direction with a lull in Washington in between debates on big-ticket fiscal issues.
Investors are now expected to turn their focus to corporate earnings, with several large companies reporting. Still, those earnings reports and some important US economic indicators fall against a backdrop of an uncertain policy environment in Washington.
“The market has started to shift its focus to earnings,” said Hugh Johnson of Hugh Johnson Advisers, an investment firm.
“There is no question that after the initial surge of euphoria [after the fiscal cliff deal], the market has become more cautious, because the big issues lie ahead” in Washington, including the potential spending cuts that could hit growth, he said.
The Dow Jones Industrial Average gained 0.4 percent on the week to end at 13,488.43.
The broad-based S&P 500 rose by 0.4 percent to conclude the week at 1,472.05. The NASDAQ rose 0.8 percent to finish the week at 3,125.63. There were few major releases last week on the US economy, save for Friday’s release on international trade.
US trade results showed a surprising jump in the November trade deficit. While the results suggested lower GDP growth, they also pointed to surging domestic spending.
Fresh data also showed a mixed picture in China. On the positive side, data released on Thursday showed a large increase in China’s trade surplus, but data released on Friday showed a notable uptick in inflation, stoking concerns that the economy could overheat.
Thursday’s news that the European Central Bank (ECB) opted against cutting interests was expected, but markets were impressed with comments from ECB Chairman Mario Draghi that suggested no rate cut anytime soon.
The week also saw the first batch of earnings reports in the current reporting period. Alcoa reported profits that met expectations, while agricultural firm Monsanto bested expectations by a wide margin. The week closed with a report from Wells Fargo that bested profit expectations, but revealed weak profit margins in its lending and investing business.
Also last week, American Express and Morgan Stanley made news with downsizing announcements that boosted shares. Boeing made the wrong kind of news when the US Federal Aviation Administration announced a safety review of its 787 aircraft following a series of problems in recent months.
The coming week will see reports from most of the major banks, including JPMorgan Chase and Goldman Sachs (Wednesday), Citigroup (Thursday) and Morgan Stanley (Friday). Also reporting will be industrial conglomerate General Electric and oil-services titan Schlumberger (Friday).
US Federal Reserve Chairman Ben Bernanke will deliver an address on the economy at the University of Michigan tomorrow. Earlier, Fed minutes showed that a number of the central bank’s policymakers favor ending its stimulus program some time this year.