Updated from 10/22/11 to include outcome of weekend talks among European leaders.NEW YORK ( TheStreet) -- The Dow has gained almost 10% over the past four winning weeks. That's the longest such streak since January, which saw a string of eight winning weeks, according to Dow Jones Indexes. But can the market continue to rise on only optimism about Europe? Every time the Kool-Aid seems to run out, the bulls give us another kicker. On Friday, blue-chips rose by triple digits even as Germany and France had hit a schism on how to leverage up the eurozone rescue fund. The market evidently has enough patience to extend its countdown for a "comprehensive" plan by another three days. Europe's leaders also tacked on another summit on Wednesday to the one on Sunday. Headlines coming out of the weekend talks in Brussels on Sunday are unlikely to make Monday's session a happy one, as European leaders failed to complete a comprehensive plan to address the region's debt crisis. Instead, they promised they would offer their solution on Wednesday. As David Ader, strategist at CRT Capital Group, put it in a research note, investors would have a "cleaner" trade, with clarity out of the eurozone. Bullish investors would be happy to be able to just focus on earnings. > > Bull or Bear? Vote in Our Poll James Dailey, senior portfolio manager at Team Asset Strategy Fund, says he believes that Europe essentially has two paths, one of credit contraction and the other of inflation, and that eurozone leaders will choose the latter. "There are 17 chefs in the kitchen and ultimately all 17 chiefs will do what leaders in the Japan, Britain and the U.S. have done in the past," he said. "Like in any democratic country that can print paper money, the leaders chose competitive currency devaluations." Stocks are likely to get whipsawed by headlines again. If only all investors were in for the longer term, then the market would able to take any incremental headlines stride. Ader at CRT Capital Group writes that perhaps "those in the market are to blame for our own angst and nervous trigger fingers to react to those headlines when we know better." Summit Roadmap The one area where there was progress over the weekend was on the issue of recapitalizing Europe's banks. An EU official said Saturday that banks would be required to bolster their capital buffers by a bit more than 100 billion euros ($140 billion), the Associated Press reported.
And on Sunday, French President Nicolas Sarkozy said the EU would require large banks increased Basel III capital standards next year, much earlier than Basel calls for. Large banks have not reacted kindly to the push for bondholders to take bigger haircuts, and that issue appeared unresolved Sunday. There remains a huge debate around how much capitalization would be enough to protect banks from being engulfed into a default mess in additional countries. One thing that leaders can take off their agenda is debating Greece's next bailout tranche. On Friday, eurozone finance ministers agreed to release an eight billion euro loan that Greece needed in order to pay its bills for November. The loan is the sixth installment of the total 110 billion euros that the European Union and International Monetary Fund agreed to give Greece last year. A key challenge for leaders this weekend was how to maximize the impact of the eurozone rescue fund. But a concrete agreement on this appeared to elude the participants in the weekend talks. Putting aside the uncertainty that remains following the weekend, Europe has made considerable progress compared to where it stood at the end of July. During the summer, discussions were mainly centered on how to stem problems in Greece and not in the larger eurozone region. The most recent talks are expected to culminate into a two-day G20 summit meeting that kicks off on Nov. 3. The U.S. Fares Better Economic data out of the U.S. of late has largely been positive but hasn't made much of an impact with Europe still at the forefront. Most surprisingly, the housing sector seems to be firming up. Builder confidence jumped in October, the National Association of Home Builders said last week. And housing starts also saw a boost in September, mostly because of increases in multifamily homes.
Next week, the S&P Case-Schiller home price index, slated for release Tuesday, is seen rising by 0.1% for August, according to Barclays. That would extend an upward trend beginning in April. Later in the week, new homes sales for September are also expected to rise. However, levels there will likely remain about the same as those seen since last year. No one is expecting housing to suddenly strengthen, and the progress so far certainly won't move the needle on the rest of the economy. But economists are at least paying more attention after overlooking housing for a long time. On Friday, the Wall Street Journal reported that the Federal Reserve is considering a new round of mortgage-backed security purchases. More information on this initiative could surface next month as the central bank is slated to meet for two days at the beginning of November. No doubt, such a proposal will go up against the three hawks at the bank, who think Fed has already done enough in its attempt to revive the economy. In other economic news, the Conference Board is expected to report on Tuesday that consumer confidence slipped in October. Then, on Friday, we get another read on consumer sentiment, this time from the University of Michigan. Economists expect the university's index to improve modestly in October from an earlier estimate but remain below September's reading. Housing and confidence numbers probably have the greatest chance of moving the market, but there are plenty of other reports coming next week. The government releases its estimate on GDP for the third quarter on Friday. The consensus calls for 2.5% growth, up from 0.4% in the first quarter and 1.3% in the second quarter. While much of the growth in the second quarter reflected a rebound in auto sales as Japanese companies recovered from the earthquake disaster, growth in the third quarter is expected to get its boost from consumption, says Barclays. "The recent data points suggest the economy is expanding. The question is whether or not this momentum can continue through the fourth quarter," says Steve Blitz, economist with ITG. "As long as there are no major implosions, the economy can still drift up to 3% or 3.5% growth."
On Wednesday, September durable goods orders are expected to drop or see a modest increase after getting a recent boost from commercial aircraft booking, and as always, Thursday delivers the weekly read on initial jobless claims, still hovering around 400,000. And then, there are earnings, which are basically the only thing the market will be able to hang its hat on if European leaders delay an agreement further. Next week, another 189 S&P 500 companies are scheduled to open their books, including eight Dow components. Headliners include Caterpillar ( CAT), Texas Instruments ( TXN), and Netflix ( NFLX) on Monday; Amazon.com ( AMZN), DuPont ( DD), and 3M ( MMM) on Tuesday; Northrop-Grumman ( NOC), Lockheed Martin ( LMT), Visa ( V), Boeing ( BA), Ford Motor ( F) and Sprint Nextel ( S) on Wednesday; Procter & Gamble ( pG), Advanced Micro Devices ( AMD), Exxon Mobil ( XOM), and Altria ( MO) on Thursday; and Whirlpool ( WHR), Chevron ( CVX), Merck ( MRK), and Weyerhaeuser ( WY) on Friday. -- Written by Chao Deng in New York. >To contact the writer of this article, click here: Chao Deng. >To follow the writer on Twitter, go to:
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