Debt ceiling issue, earnings uncertainty may hold stocks down this week

Wrangling over the U.S. debt ceiling and questions over corporate earnings mean markets are unlikely to get a break any time soon.

Wall Street is set to end its worst three months in a year as July draws to a close this week after a roller coaster ride for markets.

The Standard & Poor’s 500 index rallied 6% in the run-up to reporting season, but earnings misses from big industrial names such as Rockwell Collins Inc. and Caterpillar Inc. weighed on the Dow and S&P 500 on Friday.

Nick Kalivas, an analyst at MF Global Ltd. in Chicago, said he would be closely following earnings from sector and economic bellwethers this week. Those include package delivery company United Parcel Service Inc., chip maker Texas Instruments Inc. and online retailer Amazon.com Inc.

This week is also a big week for economic data. Fears of a slowdown in the economy have been a large driver of market volatility over the last few months, and the coming reports will be parsed very closely.

They include early regional manufacturing data from Chicago and New York, a reading of consumer sentiment and a first reading of U.S. growth for the second quarter, expected to show the economy grew just 1.9% in the period.

Bob Doll, chief equity strategist at BlackRock Inc., one of the world’s largest fund managers with around $1.6 trillion of equities under management, said last week that the U.S. economy was at a crucial juncture.

Doll points out that since 1960 every time year-over-year growth has fallen under 2%, the U.S. economy has gone into recession.

Investors should “be prepared to scale back exposure if evidence of economic growth acceleration does not materialize,” Doll said.