Before The Bell - The bulls on Wall Street had their mettle tested this week, and showed renewed conviction following Monday’s sharp selloff. Strong corporate earnings have helped to restore confidence.

Worries that the economic recovery may be diminished by a rising number of cases of the Delta coronavirus variant increased volatility significantly to start the week, with the Dow Jones Industrial Average falling by the most this year.

That sort of price action raises questions as to whether a more bearish trend is about to set in. Investors saw the dip as a buying opportunity, however, and clawed back losses, and then some, coming into Friday’s trading.

Helping matters to a large degree has been the strength of profits reported by a number of big-name companies, as well as rising expectations for better-than-envisioned outperformance. The rare backdrop in place, where the economy is expanding rapidly versus a year earlier when it was quickly contracting, is providing major assistance to bottom-line growth.

There is also a sense that businesses have some distance to go before fully bouncing back, since the public has not completely gotten back into old habits such as dining out and going to the movies.  In that regard, the millions of vaccines administered in the United States are expected to limit the damage caused by the Delta variant, and allow the reopening to proceed. 

But while GDP prospects remain favorable, some bumps in the road are inevitable. Data from the Labor Department on Thursday showed an unexpected climb in initial weekly unemployment claims, when a decline was the expectation. That took some of the intensity out of the comeback rally of the past couple of days.

The Dow picked up a slim 25 points yesterday; while the S&P 500 added nine points and the NASDAQ gained 53 points. The tone of trading shifted, too, with large-cap stocks faring better than small caps, and more issues declining than advancing.

On Friday morning, stock futures are pointing to a higher start ahead of the opening bell on encouraging earnings.

Still, a number of hurdles lie ahead for the market, not the least of which is the timing of the Federal Reserve’s decision when to start pulling back monetary support.  The Fed is expected to taper its purchases of Treasury securities and mortgage bonds from a hefty $120 billion a month to a lesser amount at some point in the coming months. How soon and by how much is sure to affect investor sentiment one way or the other.  - Robert Mitkowski   

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.