May 05, 2012, 06.59 PM IST
After Wall Street ended its worst week of the year on Friday, US stock investors will look across the Atlantic next week to take their cue from Europe as France and Greece go to the polls.
That could offer some respite from a string of weak US economic data and the earnings season winding down.
Markets worldwide have closely watched developments in Europe for the past several months, with calls for austerity seen as positive for stocks as they seek to prevent a credit crisis in the region that could take down or deeply hurt the global economic recovery.
But an economic slowdown throughout the region has amplified calls for a change of direction.
In France, the prospect of a victory by Francois Hollande over conservative incumbent Nicolas Sarkozy, which would instate the country's first Socialist president since 1995, initially alarmed some investors. Hollande's win could be a hurdle to the German-led drive for austerity in Europe.
Adding to the markets' jitters: Anti-bailout parties are expected to perform well in Greece's vote on Sunday, raising the risk of more opposition to already unpopular reforms.
"There's potential for uncertainty and instability in Europe," said John Praveen, managing director of Prudential International Investment Advisors in Newark, New Jersey. "The market is pricing in extremely negative scenarios."
Praveen said there is still room for a market rebound if Hollande, should he win the presidency, comes out with a more conciliatory tone that would ease investors' fears about France's commitment to fiscal stability.
Investors are waiting to see if Hollande, who holds an advantage in polls over Sarkozy, will be able to square France's need for fiscal reforms with his plans to promote growth.
"I'm not quite sure, regardless of who wins, does it say 'sell the S&P'? ... It just continues the uncertainty, no matter who wins," said Frank Lesh, a futures analyst and broker at FuturePath Trading LLC in Chicago.
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