By Chuck Mikolajczak
NEW YORK, March 24 U.S. stocks could break
through to all-time closing highs this week - provided a
resolution to the fiscal woes of Cyprus satisfies investors.
The island nation accounts for a fraction of euro zone
economic output, and yet the wrangling over a 10 billion
euro($13 billion) bailout package kept markets on edge
throughout last week. The S&P 500 fell for the first time in
four weeks, with weakness linked to uncertainty overseas.
The Cypriot ruling party said Friday that it was close to a
deal to raise billions of euros to secure a bailout from the
European Union to avoid a financial meltdown and a potential
exit from the euro.
Euro zone leaders have offered the country 10 billion euros
on the condition it raises 5.8 billion euros on its own. The
rescue plan is smaller in scope than previous bailouts to euro
zone members, making investors worry less about a banking
collapse and more about the possibility Cyprus would exit the
bloc and drop the euro currency.
The worry "is the psychological knock-on effect of the
credible possibility of some (country) saying 'Cyprus got out,
now they are on their own, they devalued their currency, they
don't have to go through austerity'," said Art Hogan, managing
director at Lazard Capital Markets in New York.
"What is going to stop Greece from doing the same thing? And
you start a daisy chain."
Similarly, investors had reacted harshly to proposals by
European officials to tax depositors - including those protected
by depositor insurance - to fund the bailout. That sparked some
selling on the idea that such a plan could set a precedent for
dealing with other troubled euro zone economies, and set off
bank runs across the continent.
Assuming Cyprus' troubles are solved, investors will turn
their attention to economic data due during the
holiday-shortened week, with equity markets closed on Friday for
the Good Friday holiday.
The data will include orders for durable goods and pending
home sales for February as well as the final reading of
fourth-quarter gross domestic product.
But with the trend of economic data showing a slow
improvement in the U.S. economy, few negative surprises are
expected this week. That could enable the S&P 500
to once again make a run at its all-time closing high of
1,565.15. After all, for all of the worry about Cyprus, the S&P
only dipped 0.2 percent last week and the benchmark index
remains up more than 9 percent for the year.
"The story doesn't seem to be weakening and domestically it
seems to be growing in terms of strength," said Sandy Lincoln,
chief market strategist at BMO Asset Management U.S. in Chicago.
"People are looking at a better backdrop, whether it is the
jobs data, the GDP data or the consumer stepping up on the
retail sales side in spite of fiscal drag."
Stocks could see another boost in the form of quarter-end
"window dressing" in which money managers add outperforming
stocks to their portfolios.
"You are coming into the end of the quarter, everybody has
some great results. You are going to get some window dressing on
some of the stocks that are doing well," said Paul Mendelsohn,
chief investment strategist at Windham Financial Services in
With earnings season several weeks away, only nine S&P 500
companies are expected to report quarterly results this week,
including discount retailer Dollar General Corp and video
game retailer GameStop Corp.
Only a few companies released results last week, but they
were disconcerting. Oracle Corp, the world's No. 3
software maker, fell well short of revenue expectations. FedEx
Corp, the second-largest U.S. package delivery company,
cut its forecast for the year.
According to Thomson Reuters data, of the 491 companies in
the S&P 500 that have reported quarterly earnings, 69 percent
have topped analysts' expectations, compared with 62 percent
since 1994 and 65 percent over the past four quarters.
A strong showing this week could push the index past both
its record closing high as well as its record intraday high of
But the index has faced stiff resistance in prior attempts
to break the mark, climbing as high as 1,563.62 before losing
steam. As more attempts to break the mark fall short, the
likelihood of a bigger dip that many analysts have been
"Every time it gets up there, it seems to sell off, so you
have to get through that resistance point," Mendelsohn said.
"Once we get through that resistance point that will
probably bring more buyers in. If you can't get through it, that
will probably encourage some of the sellers a little bit."