More turmoil in Europe and investor profit-taking at the end of a buoyant quarterly earnings period cut short a mini-bull run on Friday as US markets closed the week lower.
While the non-stop Greek political crisis kept traders on edge again on Friday, analysts said the rising number of companies cutting back their earnings and sales outlooks for the rest of the year was driving selling.
After four straight rising weeks, the Dow Jones Industrial Average ended the week down 2 percent, ending at 11,983.24. The broader S&P 500 was off 2.5 percent for the period at 1,253.23, while the NASDAQ Composite, heavily weighted on tech industry stocks, was 1.9 percent lower at 2,686.15.
Investors took advantage of Thursday’s strong rally to sell off stocks on Friday, ahead of another weekend filled with risks over whether the EU’s comprehensive crisis plan would earn Greece’s crucial endorsement and get support from cash-laden emerging economies.
While Greece, the epicenter of the crisis, backed off holding a public referendum on its part in the plan, investors appeared to take caution ahead of the confidence vote on Greek Prime Minister George Papandreou’s government late yesterday.
Papandreou, who survived the confidence vote, yesterday was preparing to start talks to try to form a coalition government aimed at securing continued rescue funds for Greece.
“There is no referendum, but there is still a lot of confusion how this bailout package is going to be funded,” Mace Blicksilver of Marblehead Asset Management said.
“We’re still hostage very much to what going on in Europe, and the focus in going to turn to some other countries ... Italy especially,” Blicksilver said.
Financial and banking shares swung wildly throughout the week tracking eurozone worries, including the collapse of broker MF Global due to its huge exposure to eurozone sovereign debt.
However, in the end they were only off about 4.7 percent for the week, while other key sectors were down 1.5 to 4 percent.
Analysts said earnings reports and outlook had as much or more sway on sentiment.
While 65 percent of the companies that have reported quarterly results so far have beat forecasts, many are playing down expectations for the rest of the year.
“Concerns about fourth-quarter growth have slowly set in,” Standard & Poor’s analysts Michael Thompson and Robert Keiser said in a new report on Friday.
“While strong third-quarter earnings are clearly a near-term positive development for the equity market, we are also keeping a close eye on calendar-year 2012 consensus earnings expectations, which are simultaneously heading in the opposite direction,” they wrote.
The pace of the overall economy will also drive the trend.
After a mild rebound to US growth in the third quarter, recent economic data on the current period remains mixed and the strength of growth unclear.
However, the coming week has little to offer, in terms of data releases or scheduled events.
On Thursday the US will release details of the September trade balance, and on Friday the University of Michigan consumer sentiment index is released.
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