Stocks: Down, but not out

NEW YORK (CNNMoney.com) -- Wall Street broke a four-week losing streak last week, but investors are still worried about China, Greece and the impact of a global recovery that could be far more sluggish than had been thought.

The holiday-shortened week ahead isn't likely to bring relief.

"Stocks have come a long way in a relatively short time frame and with all the developments in the U.S., the euro zone and China, it's logical for investors to want to take some chips off the table," said Mark Travis, president and CEO at Intrepid Capital Funds.

All financial markets are closed Monday for Presidents Day. Reports are due later in the week on housing starts and building permits, regional readings on manufacturing and wholesale and consumer inflation.

Merck, Hewlett-Packard, Kraft Foods, Wal-Mart Stores and Dell are the marquee names due to report results this week. But with the quarterly reporting period just about over, even better-than-expected results from those bellwethers may not have a big impact on the broader stock market.

"I think we're due for a more choppy period," said Mike Stanfield, chief investment officer at VSR Financial Services. "A 10% selloff wouldn't be out of the realm of possibility."

Between recent highs hit Jan. 19 and the lows of last week, the S&P 500 lost around 9.2%, moving ever closer to the 10% selloff that is the technical definition of a correction.

Tough start to 2010: Wall Street extended 2009's rally through the middle of January, but since then, the tone has been decidedly negative.

Improved quarterly results have been outshined by China's efforts to slow lending and get ahead of inflation as well as the growing debt crisis in Europe.

The European Union has vowed to step in should debt-ridden Greece fail to curb its growing budget deficit and need a rescue. But that hasn't eased worries about the threat of growing debt around the world. Portugal, Italy, Ireland and Spain - which with Greece make up the so-called PIIGS, are all strapped at the same time a global economic recovery is still in the early stages.

Investors are trying to figure out what a bigger debt crisis would mean for financial institutions in the U.S., as well as the global economic recovery.

Anticipating a stronger recovery that could jack up prices, China, the No. 2 economy, has taken preventive measures this year to slow down lending. On Friday, the nation told banks to boost reserves for the second time in a month.

China is considered one of the biggest drivers of a global recovery and its plans to scale back have caused market pros to question the 2010 outlook for the economy. However, China has as of yet has kept its yearly target for bank lending unchanged, suggesting it doesn't want to remove stimulus so much as slow the pace at which it is delivered.

The U.S. dollar, which has rallied versus the slipping euro, has also been a concern for investors. A strong dollar is good for the economy and for stocks in the long term, but in the short term it's been a negative, feeding the flight from riskier asset such as stocks. A weak dollar helped lift stocks and commodity prices in 2009.

Dollar-traded commodity prices have slumped this year, along with shares of energy and metal companies, with the strong greenback and fears of a slower-moving China fueling the selling.

The energy sector is one of the largest components of the S&P 500 and weakness in that sector has dragged on the broad market. In addition, the strength in the dollar has hurt the stocks of big companies that do a lot of business overseas and therefore benefit from a weaker dollar.

Quarterly results: With 379 companies, or 76% of the S&P 500 having already reported, fourth-quarter earnings are currently on track to have risen 208% from a year ago, according to Thomson Reuters. Revenues are set to rise 8%.

Improved results are partly due to easy comparisons with a year ago, when profits were battered during the height of the recession. Financial companies in particular are on track to have reported strong results. Excluding financials, S&P 500 earnings are set to rise 16% and revenues 3%.

The week brings just a few market-moving reports, with results due from four Dow components and tech bellwether Dell (DELL, Fortune 500).

Kraft Foods (KFT, Fortune 500), due to reports results before the start of trading Tuesday, is expected to have earned 45 cents per share versus 43 cents a year ago.

Merck (MRK, Fortune 500) also reports results that morning. The drugmaker is expected to have earned 78 cents per share, down 11% from a year ago.

Hewlett-Packard (HPQ, Fortune 500) reports results Wednesday after the close of trading. The computer maker is expected to have earned $1.06 per share, up 14% from a year ago.

On Thursday, Wal-Mart Stores (WMT, Fortune 500) reports results before the start of trading. The retailer is expected to have earned $1.12 per share, up 9% from a year ago.

Dell reports results after the close. The tech leader is expected to have earned 27 cents per share, down 7% from a year ago.

Monday: All financial markets are closed for Presidents Day.

Tuesday: The Empire Manufacturing index is due for release in the morning. The regional reading on manufacturing is expected to have risen to 17.70 in February from 15.92 in January.

The January Treasury budget, due in the afternoon, is expected to have narrowed to $46 billion from $91.9 billion in December.

Wednesday: January housing starts are expected to have risen to a 580,000 unit annual rate from a 557,000 unit rate in December. Building permits, a measure of builder confidence, are expected to have fallen to a 620,000 unit annual rate.

January readings on industrial production and capacity utilization are due in the morning. January readings on import and export prices are also on tap.

In the afternoon, the minutes from the last Fed policy meeting in January are due for release.

Thursday: The weekly jobless claims report from the Labor Department is due in the morning. The number of Americans filing new claims for unemployment is expected to have risen to 445,000 last week from 440,000 the previous week.

The index of leading economic indicators (LEI) is expected to have risen 0.5% in January after rising 1.1% in December. The report from the Conference Board is due out after the start of trading.

The January Producer Price Index (PPI), a measure of wholesale inflation, is due out before the start of trading.

PPI is expected to have risen 0.8% after rising 0.2% in December, with inflationary pressures slowly starting to build after a period of little pricing pressure. The so-called core PPI, which strips out volatile food and energy prices, is expected to have risen 0.1% after registering no change in December.

The Philadelphia Fed index, a regional read on manufacturing, and the government's weekly oil inventories report are both due out in the morning.

Friday: The January Consumer Price Index (CPI) is due out before the start of trading. CPI is expected to have risen 0.3% after rising 0.1% in December. The core CPI is expected to have risen 0.2% after rising 0.1% in the previous month.

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