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Wall Street Week Ahead: U.S. stocks a safe haven, even after panic selloffs

By Rodrigo Campos

NEW YORK (Reuters) - As headlines about an apparent escalation of the conflict in eastern Ukraine hit traders' screens, selling was the word on Wall Street. Once again, though, for many it looked like nothing but another buying opportunity in U.S. stocks.

Benchmark U.S. Treasury yields hit their lowest in 14 months on Friday after Ukraine said its forces had attacked and partly destroyed a Russian armored column that entered Ukrainian territory overnight.

The S&P 500 <.SPX> ended Friday down a mere fraction of a point. The three major U.S. stock indexes posted a second straight week of gains after a correction that evaporated following a brief drop of 4 percent.

An escalation of the conflict in eastern Ukraine will likely bring stronger economic sanctions against Russia from Europe and the United States - and harsher retaliation from Moscow.

Business sentiment is already on edge in Germany as Europe's largest economy deals with reduced trade with Russia. An index of Russian equities <.MCX> has dropped 6 percent for the year so far. Against that backdrop, U.S. stocks - backed by earnings - still look like the best option for investors in developed markets.

U.S.-based stock funds that invest in European equities have marked nine straight weeks of outflows, according to Lipper, a Thomson Reuters company. Flows into U.S. stock funds in that time have come to about $3 billion.

"If you're concerned about increased tension in Ukraine, that's the trade - at least for now," said Art Hogan, chief market strategist at Wunderlich Securities in New York.

"We are the cleanest shirt in the hamper," he said of the U.S. stock market.

During the selloff on Friday, the utilities sector remained strong, rivaled only by energy stocks, with investors focusing on high-dividend payers as U.S. Treasury bond yields fell.

Looking forward, though, unless something else happens to upset markets, investors seem more focused on the re-emergence of leadership from the healthcare, biotechnology and tech sectors. The Nasdaq Biotech Index <.NBI> ended Friday up 0.9 percent, gaining 4.6 percent for the week.

Brian Reynolds, chief market strategist at Rosenblatt Securities in New York, believes tech, healthcare and large-cap biotechs are in position to lead the U.S. stock market higher for the next several weeks. He sees the S&P 500 rising on Monday if tensions do not become worse.

"If Russia does not escalate, stocks are likely to open above the 1,960 they were at earlier today as people who put on knee-jerk shorts cover," he wrote late on Friday.

At a 4.6 percent rate, revenue growth for S&P 500 companies is expected to be higher than estimates going back to October last year. Even as economic figures remain somewhat mixed, investors still remain positive about overall U.S. demand.

"These are horrible human tragedies and that's worthy of mention every time this comes up," said Lawrence Creatura, portfolio manager at Federated Investors in Rochester, New York. "However, the economic impact (in the United States) has been small."

(Reporting by Rodrigo Campos; Additional reoporting by Akane Otani and Caroline Valetkevitch; Editing by Jan Paschal)

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