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By Chuck Mikolajczak
July 16, 2011 7:56 AM EDT
Stocks will be hard pressed to turn the tide of recent selling next week as political jousting over raising the United States' debt ceiling intensifies.
The benchmark S&P 500 index this week recorded its worst weekly loss in five weeks.
Investors, frustrated by the lack of progress in the debate between the Democrat-controlled White House and Senate and the Republican-majority House, could move into what are perceived as safer assets, such as cash.
While the wrangling over the debt ceiling takes center stage, earnings season will continue to heat up after a solid first week. According to Thomson Reuters data, 39 companies in the benchmark S&P 500 index <.SPX> have posted results, with 74 percent reporting earnings that topped Wall Street estimates.
Companies in the index are forecast to show a 6.5 percent rise in profits over the second quarter of 2010 when all the reports are in.
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For this week, the S&P 500 ended down 2.1 percent; the Dow fell 1.4 percent and the Nasdaq declined 2.5 percent.
The overhang from the debt ceiling issue could diminish the focus on earnings.
House Speaker John Boehner, the top Republican in Congress, said President Barack Obama and Democrats had still not put a serious deficit plan on the table, underscoring the acrimony in negotiations to avert a government default.
"The news flow next week dealing with the deficit issues and the political posturing that is taking place is going to intensify and is really going to drive these markets," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
"People are starting to get nervous about what they are seeing out there. For a portfolio manager -- let alone an average investor -- this is a treacherous market to be trying to position yourself in."
ECONOMY IS A "DISASTER"
Economic data on tap for next week includes several reports on the housing market -- June housing starts on Tuesday and existing-home sales on Wednesday. In addition, data is due on leading economic indicators for June and the Philadelphia Fed survey of manufacturing activity in the Mid-Atlantic region. Economic reports over the last month have raised questions about the health of the U.S. recovery.
"The bigger picture is the economy is still a disaster," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.
Saluzzi said people still are watching earnings for signs growth may be stagnating. "Eventually, companies are not going to keep cutting costs."
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