Tags: S&P | Stovall | Europe | Earnings

S&P’s Stovall: Europe Overshadowing Healthy U.S. Earnings

Friday, 20 April 2012 07:55 AM

First-quarter earnings have surprised on the upside but concerns that the Spanish economy could implode and take the world with it have distracted investors from healthy financials, says Sam Stovall, chief equity strategist at S&P-Capital IQ.

Several Standard & Poor's 500 companies have beaten Wall Street estimates with first quarter earnings, CNBC reports, although stocks as a whole haven't moved that much.

"People are saying, how deep is this European thing going to get?" Stovall tells CNBC.

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"Both China and the U.S. are closely tied to Europe. Basically, we're mountain climbers — the U.S. is in front, China is behind and Europe is tethered to us. But if Europe should fall, it could drag the rest of us down the mountain as well."

Yields have been rising in Spanish government bond auctions, a sign investors are growing increasingly worried how the country will narrow deficits amid a recession and are demanding more in return for investing.

Greece recently required a $172 billion multilateral bailout, though Spain is home to a much larger economy and will be much tougher to bail out, should the need arise.

As yields go up in Spanish auctions, German government debt has become more attractive as a safe haven.

"The gap between the strong and weak is increasing. Investors are increasingly looking to lend or invest only in 'safe' countries," Louise Cooper, market analyst with BGC Partners in London, writes in a note, according to the Associated Press.

"We're not yet at crisis point but much more bad economic or political news from the Iberian peninsula could tip us into the danger zone."

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