New York: Wall Street is heading into another earnings blitz this week and the prospects of strong results from bellwethers like Caterpillar Incorporated and 3M Company should propel indexes to new recovery highs.
Another round of strong earnings would be further evidence that the US econ-omic recovery is gaining strength and may help temper some of the risk associated with Greece's debt woes after Athens formally requested aid from the European Union and the International Monetary Fund on Friday.
Of the 172 S&P 500 companies that have already reported earnings for the quarter, some 83 per cent have beaten analyst expectations, well above the 61 per cent in a typical quarter and above the 79 per cent record set in the third quarter of 2009, according to Thomson Reuters data.
"Fundamentals are continuing to look great, earnings look great.
"But some market players continue to underestimate how strong this economy is. They continue to fight it, particularly in the retail and consumer sectors," said Paul Zemsky, head of asset allocation at ING Investment Management in New York.
"We continue to think that the economy is going to perform better than consensus. We have turned the corner on job growth."
Although there are other events this week that could play on sentiment, earnings are still seen as the driving factor — unless other events offer surprises.
The Federal Reserve also has a two-day policy meeting this week but analysts widely expect the central bank will keep interest rates near zero and stick to its pledge of low rates for an extended period to foster the recovery.
And top executives from Goldman Sachs are scheduled to testify before a US Senate panel on Tuesday.
The testimony of Goldman Sachs Chief Executive Lloyd Blankfein and the bond trader at the centre of a high-profile civil fraud case promise to be a major spectacle after the Securities and Exchange Commission levelled charges against the bank and the trader, Fabrice Tourre, a week ago.
Mortgage probe
The Senate Permanent Subcommittee on Investigations has said it was using Goldman to probe the role of investment banks in the securitisation of mortgage products and the "development, marketing and trading" of products such as collateralised debt obligations.
Although the hearing will command attention and put Goldman in the spotlight, corporate earnings are expected to support evidence of the econ-omic recovery and drive the market higher.
"Looking for continued economic improvement and first-quarter corporate reports is more tangible in terms of gleaning the strength and direction of this recovery" as opposed to the noise of Goldman and financial reform," said Phil Orlando, chief equity market strategist at Federated Investors in New York.
Besides Caterpillar and 3M Company, other earnings highlights this week will include US Steel Corporation; chipmaker Texas Instruments; chemical maker DuPont, and credit and debit payments network Visa Incorporated.
Energy heavyweights ExxonMobil Corporation and Chevron Corporation are also on the earnings scoreboard, the release calendar shows.
There are also plenty of economic indicators to wade through, including the government's advance reading on first-quarter gross domestic product on Friday.
"I think you could see some folks throwing in the towel right there, realising that this economy is recovering and growing a lot more strongly than the perma-bears believe," Orlando said on the upcoming GDP report.
