updated 7/26/2009 3:18:54 PM ET 2009-07-26T19:18:54

A stock market that resumed its rally on upbeat earnings reports gets another batch of numbers this week — and must decide whether to keep going or backtrack.

Major Market Indices

Over the past two weeks, the Dow Jones industrial average and Standard & Poor’s 500 index have each jumped more than 11 percent as companies across almost every industry issued better-than-expected earnings reports or forecasts for the rest of 2009.

“It was a tremendous week,” said Maury Fertig, chief investment officer at Relative Value Partners. “From the earnings front, it really was the driver” of the market’s momentum.

AT&T Inc. and manufacturer 3M Co. beat expectations, while heavy equipment maker Caterpillar Inc., drug maker Wyeth, and candy maker Hershey Co. raised their profit forecasts.

The week’s earnings and a surprisingly good existing home sales report sent stocks soaring and reassured investors that Wall Street had in fact restarted the rally that stalled in mid-June over concerns about the economic recovery. All the major market indexes, including the Dow, S&P 500 and the Nasdaq composite index, rose at least 4 percent last week, and the Dow made it past 9,000 for the first time since early January.

This week, the question will be whether second-quarter results from major firms such as Visa Inc., Colgate-Palmolive Co. and ExxonMobil Corp. will enable the market to extend those gains.

So far, surprises have been outpacing disappointments by about 3-to-1, Fertig estimated. But, he warned, “If the shift is to more disappointment than surprises, (markets) could give up some gains of the last two weeks.”

Net income figures are only part of what investors want to see. For some, companies’ revenue and sales figures are more critical because they help indicate how much demand there is for goods and services in a struggling economy.

Moreover, many companies that have beaten analyst expectations have done so because they’ve slashed their expenses, something that cannot keep boosting profits indefinitely. Companies have to bring in more revenue if they’re going to make more money.

“It’s great we’re beating estimates, but what are sales and revenue saying?” questioned Michael Church, president of Addison Capital Inc. “Nothing very good.”

“Revenue down 20 percent year over year is not something to get excited about,” Church said.

Some of the companies reporting this week, including Colgate-Palmolive and cereal maker Kellogg Inc., may give the market some insight into how consumers are feeling about their jobs, and in turn, about spending. Signs that they’re cutting back on essentials could lead to a revival of worries about the economic recovery.

But even if disappointing data and earnings results temper the latest gains, Bob Auer, senior portfolio manager of the Auer Growth Fund, said there is still plenty of uninvested money to minimize any downturn.

“If I missed most of the move, on any pull back, I’d look to get back in,” said Auer, who noted his fund is fully invested and he predicts the Dow will eclipse 10,000 in the near future. “If (the market) has any back-up at all, it will be met with instant buying.”

Such was the case Friday when the Dow and S&P 500 dipped early in trading after disappointing earnings results for Microsoft Corp. and Amazon.com Inc. only to recover and end higher for the day.

The market gets another reading on the consumer on Tuesday, when the Conference Board issues its survey of consumer confidence during July.

Investors will be also be looking at another measure of the housing market’s health. On Tuesday, a report that measures changes in house prices in major metropolitan markets, the S&P/Case-Shiller Home Price Index, will be released.

Addison Capital’s Church said investors will be looking to see if prices are stabilizing. Flattening prices after two years of sharp declines in parts of the country would add to confidence that the economy is improving, he said.

In other economic reports this week, Wednesday brings the Commerce Department’s release of June durable goods orders numbers. Durable goods include manufactured goods from computers to aircraft. Orders rose by 1.8 percent in both April and May, the best performances since the recession began in late 2007.

Economists are expecting a slight pullback, with orders projected to fall 0.5 percent, according to Thomson Reuters.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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