Stocks got hit from all sides that plunged the market last week: The White House’s proposal to impose more restrictions on banks; China’s moves to rein in economic growth; and questions about whether Federal Reserve chairman Ben Bernanke will win confirmation for a second term. His first term ends Jan. 31.
“Obama talking about banking, China talking about limiting lending and the questions about Bernanke all added a level of uncertainty to the market that wasn’t there before,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research.
That uncertainty sparked the selloff last week, but it doesn’t mean that it will continue in the week ahead.
“This was a scary pullback, but we’ve seen a series of these 5% to 7% selloffs since the market bottomed in March of last year,” Detrick said.
“Each time investors used that as an opportunity to put more money back in place and I think you can still give the bull market the benefit of the doubt,” Detrick said.
The week ahead brings the latest Federal Reserve policy meeting, the first reading on fourth-quarter GDP growth, the president’s State of the Union address and profit reports from a host of major companies.
In the wake of the big stock rally of 2009, investors are looking for more than just improved earnings on the back of cost-cutting.
“The overwhelming majority of big companies have sold off after their earnings even if the results were good,” said Donald Selkin, chief market strategist at National Securities.
“This historic rally may have discounted all the good earnings and now the companies are going to have to work to earn further stock gains,” he said.
So far 18% of the S&P 500, or 92 companies, have reported results. Earnings are on track to have risen 193% from a year ago and revenue 5%, according to the latest from Thomson Reuters. But a lot of that is due to easy comparisons to an abysmal fourth quarter of 2008, the worst in history, according to Thomson.
A lot of the improvement this quarter is especially due to a big comeback for the financial sector. Strip out financial results and year-over-year S&P 500 earnings are up just 9% and revenue growth is flat.
A report from CNN.com
