By:- NELSON D. SCHWARTZ
Investors remain nervous about the longer-term picture in the Middle East, but the easing of tensions in Egypt removes one major worry for global markets and could encourage further gains in the short term, analysts say.
A more stable situation would allow portfolio managers in the United States to focus on some underlying positives this week, including the improving economy and stronger earnings growth, said Byron R. Wien, a veteran market strategist at the Blackstone Group.
“The short-term conclusion is that the upheaval is over, and that’s good for stocks,” said Mr. Wien. “Exports are good, it looks like the consumer is beginning to spend again, unemployment is coming down and capital spending is strong.”
The coming week is set to be a busy one in terms of clues to the economy’s direction, with data on retail sales coming out on Tuesday and the government announcing the latest figures on consumer prices on Thursday. Inflation is increasingly a concern in fast-growing emerging markets like China and India, but for now price pressures are expected to remain in check in the United States, with core consumer prices estimated to be up just 0.1 percent.
In addition, new figures for housing starts will be released on Wednesday, while the latest read on leading economic indicators will come on Thursday.
Sam Stovall, chief investment strategist of Standard & Poor’s Equity Research, said he expected the data to show the economy was strengthening. Economically sensitive sectors like industrials, energy and technology have been among the stock market’s strongest performers so far in 2011.
Indeed, estimates for gross domestic product growth in the United States for 2011 have been creeping up from about 3 percent to closer to 4 percent, in part because of the $858 billion in tax cuts and incentives that Congress passed in December. There is also optimism that unemployment could sink below its current level of 9 percent.
Those are among the reasons that American stocks have gotten off to a strong start this year, with the S. & P. 500-stock index rising 5.7 percent, the best annual opening since 1998. In fact, Mr. Wien said, after a long period of outflows from stocks to bonds, mutual fund investors have started putting money into equity funds again.
Mr. Stovall added that with concerns about the Middle East ebbing, the recent flight to safety that has lifted the dollar could reverse, helping the euro regain a bit of ground it had lost on worries about excessive debt.
Oil prices are also expected to be closely watched this week. Though crude fell sharply on Friday after President Hosni Mubarak of Egypt announced his decision to step down, indications that political unrest was reawakening in Yemen and spreading to Algeria are likely to keep energy prices volatile.
Unlike Egypt and Tunisia, both of which have now seen governments topple, Algeria is a major energy producer and member of the Organization of Petroleum Exporting Countries.
“This is a relief rally, but there is a long road ahead,” said Ann Wyman, head of emerging markets research in Europe for Nomura. “There is a worry about which country may be next and that this isn’t the end of the story.”
Nevertheless, the resolution to the standoff in Egypt provided global markets with a bit of a lift. In Asia on Monday, stock markets broadly rose, with the Nikkei 225 index in Japan up 0.8 percent by midday.
Stocks in the United States rallied on Friday after news of Mr. Mubarak’s decision to step down broke, and the upward trend continued on Sunday, as bourses in the Middle East also rose, with shares in Abu Dhabi up 0.6 percent and the QE index in Qatar edging higher by 0.7 percent.
The Egyptian stock market has been closed since Jan. 27 but is set to reopen on Wednesday, and many observers expect it to bounce back as well. In what could also be a bullish indicator, Egypt successfully completed a $1.1 billion bond offering Sunday.
source:-
http://www.nytimes.com/
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