Investors are hoping companies' streak of good earnings news continues this week.
The Dow Jones industrial average is coming off its best week since March after reports from big companies like banker Goldman Sachs Group Inc., chip maker Intel Corp. and International Business Machines Corp. injected fresh hope in the market that the economy could be recovering.
The better-than-expected profits and forecasts pumped up the stock market after a monthlong slide when investors detected few new signals that the economy was improving.
But analysts remain cautious and are hoping the good news won't fade.
"It probably gets tougher as we move further through the earnings season mainly because we get some sectors where the wind might not have been as much as their back," said Jeffrey Kleintop, chief market strategist at LPL Financial in Boston. He said retailers and smaller banks aren't likely to have fared as well as the companies that reported last week.
Corporate heavyweights reporting this week should sharpen investors' view of the economy. Reports on the April-June quarter are expected from American Express Co., aerospace manufacturer Boeing Co., industrial equipment maker Caterpillar Inc. and drug maker Merck & Co. Key consumer companies Amazon.com Inc., Apple Inc., Coca-Cola Co., eBay Inc., PepsiCo Inc. and Starbucks Corp. are also due to report.
Investors also will look to Capitol Hill for direction on the economy. Federal Reserve Chairman Ben Bernanke makes his semiannual report to Congress Tuesday and Wednesday. Investors want his take on the economy now, and also clues on how the central bank will eventually wean the economy from the emergency supports put in place last fall when the financial crisis intensified. The Fed has slashed interest rates, offered cheap loans to banks and purchased government debt to ratchet down borrowing costs.
Disappointment over what companies or Bernanke have to say could make the stock market stall again. The Standard & Poor's 500 index surged 40 percent from early March until mid-June when investors started asking whether an economic rebound was further off than they had projected. Last week's gains allowed the S&P 500 index to recover the 7 percent it had lost since the market's advance began to lose steam.
The rally got going again last week because company profits and forecasts are some of the most powerful forces in the market. The second-quarter reports have had particular pull over stocks because investors had such low expectations. But analysts warn that the halo of better-than-expected numbers is likely to fade.
"The problem for the market here is that from a fundamental perspective things are not getting worse but they're not getting materially better. And the market needs to see signs that things are getting better to leg up," said Nick Kalivas, vice president of financial research at MF Global in Chicago.
There are major obstacles for the economy to overcome before it can emerge from the recession that began in December 2007, the longest since World War II.
Home prices are still down sharply in many parts of the country and, most important, unemployment sits at a 26-year high of 9.5 percent. The Fed predicts unemployment will top 10 percent by the end of the year.
The Labor Department said Friday that unemployment already rose above 10 percent in 15 states and the District of Columbia in June.
Investors know unemployment often keeps rising even when an economy is improving. But the worry is that joblessness will be so severe it will choke off a recovery by pushing businesses and even consumers with jobs to curb spending.
In downturns over the past 60 years, the S&P 500 index has hit bottom an average of four months before a recession ended and about nine months before unemployment hit its peak.
Beyond earnings reports and Bernanke's testimony, few economic indicators are expected.
The Conference Board releases its June index of leading indicators. It's one of the few economic snapshots designed to look ahead, predicting economic activity for three to six months.
The National Association of Realtors is expected to issue a report on sales of existing homes.
Investors also will be watching for fallout from the financial troubles at small-business lender CIT Group Inc., which is burdened by a heavy debt load. Its failure could dent investor sentiment and disrupt industries like retail, which has some suppliers tied to the company.
The stock jumped Friday as the company held talks with several large banks about securing emergency financing in hopes of avoiding a bankruptcy filing, a person familiar with the talks told The Associated Press. The person spoke on condition of anonymity because the talks are confidential.