The rain in Spain falls mainly…on the banks

Another crazy week for stock markets, headlined by the PIIGS with high volatility and great event uncertainty. Overall the market was able to recapture some of the lost grounds from previous weeks. Again Northern European markets outperformed the rest of Europe, with the OMXS30 in Sweden surging 4.1 percent and the DAX increasing 3.5 percent. Denmark, Great Britain and Switzerland also had a great week. Last week’s earnings releases underlined the divergence in economic development between the US and Europe. The macro picture in Europe is once again getting worse and the market currently fears that Spain will need an impossible bailout if its banking system breaks down. 

The US market is showing a completely different picture with more than 80 percent of the US first quarter earnings reports so far having been better than expected. The US market traded sideways during the week. Technology was the major loser as Apple’s 5 percent loss for the week dragged down the various tech indices. The more defensive sectors such as health and consumer discretionary performed the best as investors focused on less cyclical stocks.

This is the big week for earnings. The most interesting company to report is Apple which is down close to 10 percent from its peak mid-April. Additionally the biggest oil companies such as Exxon, Shell and Chevron also report Q1 results this week, along with China Construction Bank and a slew of other large companies.