US market this week to focus on drama playing out in Washington

US stocks ended the week higher on Friday, getting a boost from the
eurozone's agreement to bail out debt-ridden Greece and from several
blockbuster company earnings reports. The Dow Jones Industrial Average climbed 1.61% for the week to close at 12,681.16. The broader S&P 500 rose 2.19% to 1,345.02, while the tech-heavy Nasdaq Composite - fuelled by healthy profits from Apple and Microsoft - rallied 2.47%. Shares of Apple gained 7.8% last week after the tech giant reported that second-quarter profits more than doubled to US$7.31bil. Microsoft
was up 2.8% for lasty week after it reported record revenue, thanks in
part to impressive sales of its Xbox gaming console. Industrial
giant Caterpillar was among the week's losers, falling 3.9% for the
period after its profits fell short of expectations. This week,
investors' attention will be focused on the drama playing out in
Washington, where Democrats and Republicans are locked in a stalemate
over raising the US government's US$14.29 trillion debt ceiling. The
White House has warned that failure to reach a deal by August 2 could
force the US Treasury to default on its debts, which would roil
financial markets and possibly cause another recession. Conventional
wisdom on Wall Street is that an agreement will be reached, averting a
catastrophic default, said Ajay Rajadhyaksha, managing director for
fixed income at Barclays Capital. “The market still believes that
there will be a deal that raises the debt ceiling at the very last
minute, just as there was to keep the government running earlier this
year,” Rajadhyaksha said. Besides the debt talks, investors will
also be watching a series of earnings reports for information on how
major US companies are faring amid a sluggish economy. Automaker
Ford reports quarterly results last Tuesday, followed by aircraft
manufacturer Boeing and Delta Air Lines on Wednesday. Energy
giant ExxonMobil reports earnings on Thursday, followed by fellow oil
company Chevron and pharmaceuticals maker Merck on Friday. This
Friday will also be the day when the Federal Reserve publishes its
estimate of US second-quarter gross domestic product (GDP) growth. Economists expect a low figure, following the near-stalled 1.9% pace of the first quarter. Still,
markets are likely to rally as soon as politicians reach a deal to
raise the debt ceiling and reduce the federal deficit, much as they did
after the Greece bailout was announced this week, analysts said. “If
the market can get a deal done in the US, a budget reduction in the
books, I think the market will focus on the positive aspects of the
earning reports,” said Marc Pado, US market strategist for Cantor
Fitzgerald. “If the economy changes, if the economic perception changes, the market could jump considerably.” Goldman Sachs rallied 4.1% to US$135.49. The rally in technology shares sent the Nasdaq-100 Index to the highest level since February 2001. The measure derives 66% of its value from computer-related companies, according to data compiled by Bloomberg. AMD
soared 21% to $7.75. The second-largest maker of processors for
personal computers forecast third-quarter sales that exceeded analysts'
estimates, citing new chip orders. Intel Corp., its biggest rival, rose 3.4% to $23.13. Medco surged 22% to US$65.96 after Express Scripts
agreed to buy it for US$29.1bil in the largest deal in at least a
decade among US companies that manage prescription- drug benefits. Buying
Medco gives Express Scripts the scale to become dominant among
companies that handle drug benefits for corporate and government
clients. E*Trade, the online brokerage that has fallen 94% since June 2007, advanced 21% to US$15.64. Citadel LLC,
the company's largest shareholder, said July 20 that E*Trade should
hold a special meeting and remove two of its directors to address the
“catastrophic losses” for shareholders. Agencies