US financial markets have taken a breather 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.
In the coming week, the market is expected to turn to corporate earnings, with several large companies reporting. Still those earnings reports and some important US economic indicators due next week fall against the 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.
The Dow Jones Industrial Average gained 0.4 per cent in the week to end at 13,488.43.
The broad-based S&P 500 rose by 0.4 per cent to conclude the week at 1,472.05. The Nasdaq rose 0.8 per cent 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.
The 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 pointed to a mixed picture in China. On the positive side, Thursday’s release of trade data showed a large increase in China’s trade surplus. But data on Friday pointed to a notable uptick in inflation, stoking concerns that the economy could overheat.
Thursday’s news that the European Central Bank (ECB) opted against cutting interest rates was expected. But markets were impressed with comments from Chairman Mario Draghi that suggested no rate cut anytime soon. Those remarks helped send the euro higher against the dollar.
The week also saw the first batch of earnings reports in the current reporting period.
Alcoa, which unofficially kicked off the earnings season, 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 beat 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.
Aerospace giant Boeing made the wrong kind of news when the Federal Aviation Administration announced a safety review of Boeing’s 787 aircraft following a series of problems in recent months.
The coming week will see reports from most of the major banks, including JP Morgan Chase and Goldman Sachs (both Wednesday), Citigroup (Thursday) and Morgan Stanley (Friday). Also reporting will be industrial conglomerate General Electric and oil-services titan Schlumberger (both Friday).
On Monday, Federal Reserve Chairman Ben Bernanke will deliver an address on the economy at the University of Michigan. The speech comes after Federal Reserve minutes showed a number of the central bank’s policy makers favour ending its stimulus program some time in 2013.
Major financial indicators slated for release next week include retail sales on Tuesday and housing starts on Thursday.
