NEW YORK ( TheStreet) -- If Tuesday was a test of whether corporate earnings would have enough power to distract investors from ongoing uncertainty in Europe, the answer was a resounding "no." By now, market watchers have grown accustomed to the reality that stocks are more readily influenced by Europe's temperature than by market fundamentals. But with the beginning of the third-quarter earnings season and signs that European leaders are serious about taking action to contain their debt crisis, there was some hope that corporate results could temporarily shelve eurozone fears. "So far, out of the few companies that have already reported earnings, the percentage of companies beating expectations is over 61%, but Europe is never going to be on the back burner. It will always be a problem," said Peter Cardillo, chief market economist at Rockwell Global Capital. "It does appear that European leaders are close to taking action, which means that the fear factor surrounding Europe will lift and some of the volatility that we've been experiencing lately will lift, but investors are going to be keeping an eye on Europe for a long time," he said. Tuesday was a perfect example of Europe's continued potency. The earnings docket was heavily stacked with Dow components and other key names from a range of sectors including Bank of America ( BAC) and Goldman Sachs ( GS) from the financial sector, Coca-Cola ( KO) and Johnson & Johnson ( JNJ) from the consumer sector and IBM ( IBM), Intel ( INTC), Apple ( AAPL) and Yahoo! ( YHOO) from the tech sector.
Even though results were mixed, with IBM falling short of top- and bottom-line expectations, better-than-expected earnings from Bank of America and Goldman Sachs helped support stocks throughout the session. But the story changed as soon as the latest news from Europe hit -- this time in the form of an article in the United Kingdom's Guardian newspaper reporting that France and Germany agreed to increase the eurozone rescue fund to €2 trillion ($2.76 trillion). Even though Dow Jones Newswires quickly shot down the account with a report that said the size of the fund is still being debated, U.S. equities soared to close nearly 2% higher.
"We were talking about earnings up to about 2 p.m. when it became apparent that there are three legs to this stool: China and other emerging markets, the international picture and the domestic picture in the U.S.," said Jeff Sciscilo, wealth consultant at Campbell Wealth Management. "I think that to a degree earnings are generally a sign that things are going well, but to the investment community, they are seen as a lagging indicator. There's some indication of what's to come in the coming quarter, but overall, what earnings basically are showing us is that the U.S. isn't in a recession but we're looking at growth in the muddle-through range of 2% to 3%. The headlines out of Europe, on the other hand, are more about where we're headed, and that's why they are so important right now," he said. On Wednesday, market attention was clearly split between earnings and Europe. Stocks were mixed throughout morning trading. Despite some strong earnings reports, stocks resisted moving higher as investors kept an eye on Europe. Disappointing results from Apple ( AAPL), meanwhile, kept the Nasdaq in negative territory. "There is very little opportunity to produce returns by buying individual stocks that are moving on their own individual merits," said Real Money Columnist Rev Shark in a Wednesday blog post. "The dominance of the European headlines makes it very difficult to have much confidence in charts or fundamentals right now," he said, adding, "Until we are less focused on Europe, trading will continue to be challenging." It appears that investors will have to wait until this weekend to see if a comprehensive plan from the Oct. 23rd European summit will be enough for the eurozone to loosen its grip on the market. -- Written by Melinda Peer in New York.
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