Courtesy of Daniel Sckolnik, ETF Periscope
“He who controls others may be powerful, but he who has mastered himself is mightier still.” – Lao Tzu
There is no doubt that this week will be strongly impacted by the sheer volume of S&P 500 companies reporting earnings over the course of the coming week. However, the longer term direction of Wall Street is more likely to be impacted by Sunday’s election in France.
Investors will definitely be paying close attention to the corporate earnings reports that will be announced by about one-third of the S&P 500 companies throughout the week. So far, earnings season has been regarded as upbeat, as the majority of reports have come in slightly above expectations. Should this trend continue, Wall Street might resume its Q1 rise, based more or less on the fundamentals of the market.
However, even positive corporate numbers may not be enough to trump the perception of risk that investors hold of the Eurozone situation.
On Sunday, France goes to the polls to vote on a new president. The expectations are that Nicolas Sarkozy will end up in a runoff with the more left-leaning Francois Hollande, and a May 6th runoff shall follow.
What is of significance to investors in this election is not just who will end up steering France’s government, but what it represents to Europe on the larger scale.
If Hollande is the ultimate victor, it means that the French electorate is responding to, among other things, his calls for more taxes on the rich to help generate an increase in government-sponsored jobs, as well as his position that there should be fewer budgetary cuts. In other words, more growth, less austerity.
This is, to a large degree, the same drama that is being played out in Greece, as well as Spain. With the majority of the PIIGS (Portugal, Ireland, Italy, Spain and Greece) either in recession or tottering on the precipice of one, the issue of growth versus austerity is now the predominant question of the day. How the French elections play out may serve to give an accurate read on the direction the EU shall be heading.
If the austerity advocates continue to prevail, the result might be additional bailouts to Greece, Portugal, and Ireland, and future bailouts for Spain and Italy. If pro-growth advocates assume power in the next round of elections throughout the…
