Will markets prevail over Cyprus?

March 19, 2013: 9:06 AM ET
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NEW YORK (CNNMoney)

U.S. stock futures edged higher Tuesday, as investors tried to shake off concerns about Cyprus.

Investors are worried that financial turmoil stemming from the heavily indebted island nation, where the European Union is trying to impose a one-time tax on bank accounts, will spread to Russia, Europe and even Wall Street.

"We believe the [EU] decision on Cyprus was a dangerous move, with the potential to have knock-on effects elsewhere," wrote Gizem Kara and analyst co-authors from BNP Paribas, in a research note. "Although the immediate impact may be contained if the decision is deemed to be unique in Cyprus, due to its special circumstances, a precedent has been set."

The Cypriot parliament still has to decide on the tax, which would directly affect many Russian investors who have deposited money in Cypriot accounts.

Related: Eurozone's risky strategy

U.S. stocks tumbled Monday amid concerns about the controversial bailout and bank tax in Cyprus.

Still, U.S. stocks have had a good run. The Dow just snapped a 10-day winning streak, which included eight straight days of record highs. And the S&P 500 is less than 1% away from its all-time high. All three major indexes are still up between 8% to 10% for the year so far.

The rally has been fueled by stimulus from the Federal Reserve and ongoing signs that the economy is well on its way to a full recovery.

Related: Cyprus just a 'hiccup' for stock rally

The latest housing data could give investors something to cheer about.

The U.S. Census Bureau said housing starts rose 0.8% in February, while building permits jumped 4.6%. Building permit data is considered a proxy of builder confidence. Shares of homebuilders Lennar (LEN), Toll Brothers (TOL) and Hovnanian (HOV) rose in premarket trading.

In corporate news, Canadian athletic apparel maker Lululemon Athletica (LULU) announced a recall of yoga pants that were unintentionally see-through. The company's stock plunged nearly 8% in premarket trading.

Shoe retailer DSW (DSW) missed revenue forecasts and issued cautious guidance about sales.

Software company Adobe Systems (ADBE) and home retailer Williams-Sonoma (WSM) will report fourth quarter results after the close.

Electronic Arts Inc (EA) shares rose 2% in premarket trading after the company announced its chief executive was resigning. EA also said its revenue and earnings would be at the low end or below its January guidance.

Related: Fear & Greed Index: Sliding into greed

European markets were mixed in midday trading, while Asian markets ended mixed.

The ZEW Indicator, a measure of economic sentiment in Germany, notched up in March but was muted by Cyprus uncertainty and political turmoil in Italy.

The U.S. dollar gained against the euro, which was trading at $1.29.

"Capital flight is the most immediate concern," wrote Caxton FX analyst Richard Driver. "People will be loath to park their funds in euros if risks like these [Cyprus] taxes exist. Reassurances have been made that the Cypriot scenario is unique but there is no way people can be sure that this is the case."

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