Greece's elections this weekend will be vital to the markets, as will any stimulus news from the Federal Reserve.
NEW YORK (TheStreet) -- The Greek elections on Sunday and any news from the Federal Reserve should determine the direction of the markets in the coming week.
"If there's an overwhelming vote for the more pragmatic person in dealing with the European Union, that would be positive," explains Quincy Krosby, Prudential Financial market strategist. "If the result is not an outcome that has been captured by the markets, that would be a surprise" and could be negative, she added.
Krosby noted that about 70% of Greece's electorate has consistently expressed support for Greece staying in the eurozone but many voters don't really want the accompanying austerity measures.
"It seems like to a certain extent the market has already priced in Europe being able to handle outcome of election no matter how it goes," said Kevin Mahn, the president of Hennion & Walsh Asset Management.
Mahn says that Greece will eventually leave the euro and that Sunday's election results may market a step in that direction. But he adds that an exit from the eurozone won't happen overnight and it will take a while for global markets to feel its effects.
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He also says that if Greece leaves the currency bloc then Europe will work to shore up the rest of it.
"Europe is in the first or second inning of its recession, and the U.S. is in its eighth or ninth," Mahn said.
The Dow Jones Industrial Average closed the week up 1.69% at 12,765.89. The blue-chip index has risen 4.49% year to date.
The S&P 500 rose 1.28% this week to 1,342.73 and has gained 6.77% year to date.
The Nasdaq Composite ticked down 7.18 points, or 0.25%, this week to 2,872.80. The index has risen 10.27% year to date.
"The market's up today based on a resolution in Europe and them trying to take the Greek situation off the table in the short term," Mahn said.
In examining how the market reacted on Thursday to chatter of potential stimulus measures from the Federal Reserve, Krosby noted the importance of gold.
She said gold's move -- particularly in comparison to stocks -- was telling and may forecast how things will go in the coming week.
On Thursday, gold rose toward $1,630 but then fell toward the end of the session to about $1,620.
That same day, the more defensive sectors in the market were performing better than the more cyclical sectors such as metals and industrials, which Krosby considers to be the typical outperformers when there is news of a liquidity move.
Given those two things, Krosby said that the market "doesn't know if the liquidity push will work, so investors are staying defensive until there's more information."
Krosby noted that the Federal Reserve could come out before the FOMC rate decision is made on June 20 and either announce a plan or say something that could induce more confidence in the markets.
If the markets are assuaged by stimulus talk or actions, Krosby anticipates that money will leave the defensive sectors and head into the cyclicals.
In earnings news this coming week, some of the biggest reports will come on Tuesday and Thursday. Barnes & Noble(:BKS), Carnival(:CCL) and FedEx(:FDX) report their earnings on Tuesday, while ConAgra(:CAG) and Rite Aid(:RAD) have their earnings on Thursday.
Book retailer Barnes & Noble is slated to report a fiscal fourth-quarter loss of 93 cents a share on revenue of $1.48 billion.
Cruise company Carnival is anticipated by analysts to report second-quarter earnings on Tuesday of 7 cents a share on revenue of $3.55 billion.
FedEx is scheduled to report fiscal fourth-quarter earnings on Tuesday of $1.92 a share on revenue of $11.12 billion.
Food company ConAgra will report fiscal fourth-quarter earnings on Thursday of 50 cents a share on revenue of $3.39 billion.
Rite Aid's fiscal first-quarter earnings are coming on Thursday with analysts, on average, expecting a loss of 3 cents a share on revenue of $6.44 billion.
On the economic news front, housing starts and building permits will be reported on Tuesday and the FOMC rate decision is coming on Wednesday.
Mahn anticipates that the market will be range-bound for the near term and said that in this kind of market where it's tough to see which sectors will lead, investors should be balanced and invest in the consumer-staples and consumer-discretionary sectors in order to play both sides of the market.
-- Written by Alexandra Zendrian
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