As earnings take over, fundamentals to be tested
By Ryan Vlastelica
NEW YORK (Reuters) - Next week marks the first big week of second-quarter earnings, and it is sure to bring both joy and misery to Wall Street.
Investors will concentrate on market fundamentals after weeks when Federal Reserve policies have dominated the market. If they see companies are still struggling, stocks could take a fall.
Even after Fed Chairman Ben Bernanke scared markets in June by telling investors the Fed is likely to reduce monetary stimulus in coming months, stocks have recovered, with both the Dow and S&P 500 climbing to all-time highs. In an appearance earlier this week, the Fed chairman said monetary policy was likely to be accommodative for some time.
"We're in the terminal stages of a Bernanke-driven bubble," said Walter Zimmerman, technical analyst at United-ICAP in Jersey City, New Jersey. "While a lot of damage has been done to the bear case, eventually bad news like weak earnings growth will start to bear fruit."
To be sure, the Fed, which has shown a much friendlier face to investors lately, will not be out of the picture. Bernanke will appear before congressional committees on Wednesday and Thursday to deliver the semiannual testimony about monetary policy. However, few surprises are expected.
The S&P's 17.8 percent advance in 2013 is largely attributable to the central bank's accommodative policies. The major indexes made impressive gains in the week: the Dow .DJI up 2.1 percent, the S&P .SPX 3 percent higher and the Nasdaq .IXIC up 3.5 percent. It was the third straight week of gains for all three, and the best week for the S&P and Nasdaq since early January.
"The Fed has been able to prevent a big selloff so far, but eventually the economy will have to catch up to the market or the market will fall back to match the economy," said Scott Armiger, who helps oversee $5.6 billion as portfolio manager at Christiana Trust in Greenville, Delaware.
MORE FOCUS ON EARNINGS Continued...