updated 3/22/2009 4:08:27 PM ET 2009-03-22T20:08:27

Wall Street is in need of some positive reinforcement.

Major Market Indices

After the Dow Jones industrials just managed their first two-week stretch of gains in nearly a year, the question is whether investors will get the good news they need to keep buying.

The major indexes pulled back on Thursday and Friday as investors collected profits from an advance that saw the Dow soar 14 percent over seven days. But some analysts aren't ready to call an end to the rally just yet.

"Any market that is going to sustain a rally on the way up is going to have pullbacks," said Jeffrey Frankel, president of Stuart Frankel & Co. "If everyone gets too happy too fast that means we haven't seen the worst."

Analysts expect investors to focus this week on what the government says and does about the recession and the banking system.

"We need positive news to continue coming out of Washington," Frankel said.

The most critical news may well be the details of the government's plan to help relieve banks of an estimated $1 trillion of toxic mortgage assets on their books. Some of those details came out on Sunday: A new government entity, the Public Investment Corp. will help purchase those assets. The plan is to seek private investors including big hedge funds to buy the assets, while the government will provide low-interest loans to finance the purchases and also share in the risk if the assets fall further in value.

The stock market plunged last month when Treasury Secretary Timothy Geithner announced the outline of the plan but few details. But the tone of the market has improved somewhat since then. Stocks soared last week after the Federal Reserve announced plans to pump more than $1 trillion into the financial system by buying Treasury bonds and mortgage-backed securities. Doubt did creep back into the market, however; as the week wore on, many investors began to question whether the steps would be effective and whether they would ignite inflation.

For the week, the Dow rose 0.8 percent, its first back-to-back weekly increase since the period ended May 2, 2008.

The Standard & Poor's 500 index rose 1.6 percent, its first two-week gain since December, and the Nasdaq added 1.8 percent for the week.

Financial stocks have largely driven the market these past few weeks, and that trend is expected to continue.

"If there's some more activity in the financials and you're not seeing a massive sell-off there, this (rally) could continue to pick up a little bit more steam," said Robert Pavlik, chief market strategist at Banyan Partners LLC in New York.

Citigroup Inc.'s news that it operated at a profit the first two months of this year set off the rally that began two weeks ago. Several other large banks have also said they are performing better than expected. Still, many concerns about rising loan losses and dwindling capital levels remain, and they are likely to limit the gains for bank and insurance stocks.

But analysts say a little caution is good for the market.

"We have a better chance of the market having a real floor in it if this skepticism continues," Frankel said.

Analysts also have been encouraged by the market's orderliness, where big gains have been followed by relatively slight declines.

"It's definitely healthy to have a pullback, the same way it was terribly unhealthy to go straight down," Frankel said. "We have to see a consolidation period without the sellers stepping in or people getting cold feet."

Outside of financials, other industries to watch include energy, basic materials, technology and industrials — all areas that are extremely sensitive to economic factors. If those stocks continue to move higher, it would indicate the market is heading in the right direction, Pavlik said.

Investors will get a few readings on the housing market this week when the National Association of Realtors releases existing home sales figures for February on Monday and the Commerce Department releases new home sales data for February on Wednesday. Investors want to see if upbeat housing start figures that were released last week and that contributed to the rally were an isolated event or part of a healing trend in housing.

Also expected this week are reports on durable goods orders for February, as well as personal income and spending for the month.

On Thursday, the Labor Department will release its weekly jobless claims report, while the Commerce Department will issue its final fourth-quarter gross domestic product figure.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 4.91%
$30K home equity loan FICO 5.20%
$75K home equity loan FICO 4.57%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.42%
13.40%
Cash Back Cards 17.92%
17.92%
Rewards Cards 17.13%
17.12%
Source: Bankrate.com