With the corporate earnings season drawing to an end and recent U.S. economic data raising doubts about the pace of growth, the S&P 500, which is down 7.3 percent so far in May, could decline further next week as concerns about the financial health of Europe persist.
The S&P 500 fell 4.3 percent for the week, its steepest weekly decline this year, and closed below 1,300 for the first time in four months.
Solid corporate earnings and upbeat U.S. economic indicators had fueled the rally in U.S. stocks, offsetting jitters over Europe. But with earnings almost out of the way and data starting to disappoint, investors have shifted their focus back to headlines out of Europe.
With just a few earnings and economic reports, there will be plenty of opportunity for markets to dwell on Europe and its problems. In the past week, investors began to reassess the possibility that Greece could leave the euro zone in a messy fashion, spurring bank runs in other weak peripheral countries.
While still not viewed as highly likely, those fears helped send buyers into the bond market, driving 10-year yields to historic lows. Stocks sold off, in their worst weekly performance of the year. The Dow in the past week was down 3.5 percent to 12,369, and the S&P 500 was off 4.3 percent to 1295. The Nasdaq was down 5.3 percent to 2778.
The markets are also watching the European banking sector, under review by Moody’s. Moody’s downgraded Italian and Spanish banks in the past week.
Leaders of the Group of 8 major industrial economies meet this weekend to try to tackle the financial crisis in Europe. U.S. President Barack Obama, the G8 host, has urged European leaders repeatedly to do more to stimulate growth, fearing contagion from the euro crisis that could hurt the U.S. economy and his chances of re-election in November.
The market is extremely oversold. Nonetheless, all major indicators remain on sell signals, "We expect a powerful but short-lived rally should be coming soon. But at this point, barring some major shifts in our indicators, it may only be a rally in a larger down-trending market
Next week's economic data includes April's existing home sales on Tuesday at 10 a.m. Existing home sales are forecast at a 4.60 million-unit annual, up from 4.48 million in March.
New homes sales figures are due on Wednesday at 10 a.m. April's new home sales are also expected to post an increase, gaining about 7,000 units over a 328,000-unit annual rate in March.
Initial jobless claims and durable goods orders will be published on Thursday at 8:30 a.m. Consumer sentiment is due at 9:55 a.m. on Friday.
What to Watch next week may 21-25 2012
Monday
Earnings: Campbell Soup, Lowe’s, Urban Outfitters, Ryanair
0515 am Atlanta Fed President Dennis Lockhart speaks in Tokyo on monetary policy
Tuesday
Earnings: AutoZone, Best Buy, Medtronic, Ralph Lauren, Vodafone, Williams-Sonoma, Cracker Barrel, DSW, Analog Devices, Dell, Petsmart, Guess, Take Two
0615 am Atlanta Fed’s Lockhart in Hong Kong on monetary policy
1000 am Existing home sales
1000 am Richmond Fed survey
0100 pm Treasury auctions $32 billion in 2-year notes
Wednesday
Earnings: Hewlett-Packard, American Eagle, Bank of Montreal, Big Lots, Hormel, Toll Brothers, NetApp, Pandora, PVH, Synopsys
1000 am New home sales
1000 am FHFA home price index
0100 pm Treasury auctions $32 billion in 5-year notes
0200 pm Minneapolis Fed President Narayana Kocherlakota in Rapid City, S.D.
Thursday
Earnings: Costco, Royal Bank of Canada, Tiffany, Toronto Dominion, Verifone
0830 am Initial jobless claims
0830 am Durable goods
1230 pm New York Fed President William Dudley at Council on Foreign Relations
0100 pm Treasury auctions $29 billion in 7-year notes
Friday
0530 am Philadelphia Fed President Charles Plosser speaks in Germany
0955 am Consumer sentiment
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