updated 5/10/2009 3:48:13 PM ET 2009-05-10T19:48:13

After a week when investors were reassured by the government's assessment of the banking industry and its latest reading on the job market, Wall Street's focus turns to the consumer.

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The coming week features first-quarter earnings figures from Wal-Mart Stores Inc., Macy's Inc. and other retailers and the Commerce Department's retail sales report for April. So far, the expectations are that the readings will help the stock market extend a two-month-old rally.

The government's retail sales tally follows April sales figures issued by the retailers on Thursday. Those reports showed spending generally fell, but by a smaller amount than in the previous months. Still, the recession weighed on consumers, who concentrated their spending on necessities such as groceries and health care products.

Economists polled by Thomson Reuters, on average, predict the government will report a 0.1 percent dip in retail sales from March's level.

"I would be surprised if retail sales come in anything other than expected," said Jeff Ivory, a partner at Stonebridge Financial Partners LLC in Bingham Farms, Mich. Meeting or even exceeding forecasts would provide additional strength to the market, he said.

Ivory said investors still have the mind-set that started the stock rally in early March. They're focused on whether economic data and corporate reports are showing incremental improvement, even if there are still signs of weakness.

"What we're seeing in aggregate is that bad news isn't necessarily bad news anymore," Ivory said. "It's all relative."

Consumer spending accounts for more than two-third of economic activity. So signs of stronger spending or upbeat outlooks from retailers would give investors incentive to keep buying.

Brett D'Arcy, Chief Investment Officer of CBIZ Wealth Management in San Diego, said a worse-than-expected reading on retail sales or disappointing results from a major retailer might lead to a short-term drop in the market, but only a series of bad reports over a couple of weeks would be likely to derail the rally.

Cincinnati-based Macy's first-quarter results are scheduled to be released Wednesday, while investors hear from Bentonville, Ark.-based Wal-Mart on Thursday. Analysts expect Macy's to post a quarterly loss of 23 cents per share, while Wal-Mart is expected to earn 77 cents per share.

Very little has been able to slow down the market in recent weeks — not even the government saying some of the nation's largest banks are still facing capital shortfalls. The government's stress-test results did just the opposite.

For the week, the Dow Jones industrials average gained 2 percent. The broader Standard & Poor's 500 index rose 2.4 percent, while the Nasdaq composite index gained 1.3 percent.

Investors believe the stress tests gave them more clarity about where the nation's 19 largest banks stand and how much money they will need to protect against further losses.

The benchmark KBW Bank Index, which tracks 24 of the nation's largest banks, jumped 12.1 percent Friday, The test results were released late Thursday.

The government's findings "lessened the worst fears investors had," said Nicholas Sargen, chief investment officer at Fort Washington Investment Advisors in Columbus, Ohio. Just a few months ago, investors were worried about potential government takeovers of the largest banks or their collapse, he said.

CBIZ's D'Arcy said information leaking out about the results in the days before the official release also helped the market. That included word that Bank of America Corp. would have to make up a nearly $34 billion shortfall.

"The way they put it out to the public, it was highly telegraphed so when the actual results came, it wasn't a big shock," D'Arcy said.

And in a sign that the recession is moderating, the Labor Department said layoffs totaled 539,000 in April. Economists expected employers to cut 620,000 jobs during the month.

The unemployment rate climbed to 8.9 percent, meeting expectations.

The improvement in the jobs loss figure was helped along by a burst of hiring by the federal government to prepare for the 2010 Census. But there were also smaller payrolls cuts at construction companies, factories, retailers and financial services, and that is the kind of incremental improvement Wall Street is looking for.

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

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