Debt crisis in Europe unlikely to sideline stock buying

Europe’s sovereign debt crisis will still hang over global markets this week, but on Wall Street investors will not be afraid to bet on stocks.

Wall Street last week showed its ability to hold on to gains or quickly recover from losses despite Europe’s debt woes, suggesting that investors are confident of a sustained rally.

“When things don’t fall apart on bad news, you know that the market is no longer vulnerable,” said Randy Frederick, director of trading and derivatives at Schwab Center for Financial Research in Austin, Texas. “The overall sentiment is pretty solid.”

Wall Street’s so-called fear gauge, the Chicago Board Options Exchange’s volatility index, fell Friday despite a decline in stocks earlier in the day as traders saw fewer reasons to buy protection.

The index closed at its lowest since April.

Fear that Europe’s debt crisis could spiral out of control pushed stocks off two-year highs hit last month. Two weeks ago, the Standard & Poor’s 500 index was down 3.1% from Nov. 5.

But the index recovered to early November levels last week on a spate of healthy economic data and an upbeat outlook on consumer spending during the holiday shopping season.

“Europe is kind of its own play now,” said Jeff Roach, chief economist at Horizon Investments in Charlotte, N.C. On Friday, stocks closed out their best week in a month — with the Dow Jones industrial average up 2.6% , the S&P 500 up 3% and the Nasdaq composite index up 2.2% — after shrugging off tepid job numbers for November.

Year to date, the S&P 500 index is up 9.8%, while the Dow is up 9.2% and the Nasdaq is up 14.2%.

Economic indicators this week will be fairly light, with the Institute for Supply Management releasing its semiannual economic forecasts for the U.S. manufacturing and services sectors Tuesday. The weekly mortgage data Wednesday and jobless claims Thursday will get close scrutiny.

On Friday, Wall Street will watch the international trade deficit for October, which is projected to fall to $43.8 billion from September’s $44 billion, according to economists polled by Reuters.

Also due that day are November import and export prices.