An intense week of earnings reports will tell whether Wall Street can extend its rally to a seventh week — or see its gains pop like a bubble.
With each week that the stock market lifts itself from the 12-year lows seen in early March investors grow at turns hopeful and nervous. The gains are welcome after torrential selling in February but too much too soon could fan worries that a rebound will quickly go into reverse.
The coming week's flood of corporate earnings and important data on the housing market likely will bring the biggest test yet of whether traders have been correct in placing bets on a strengthening economy.
The Dow Jones industrial average will start the week up 24 percent from its March low. That's an enormous jump that might ordinarily take the market years to assemble so some traders are naturally skeptical.
Wall Street has allowed the gains because of tentative signs that the economy might be starting to right itself. Reports on home sales, manufacturing, retail sales and even unemployment have indicated the economy isn't sliding as quickly as it had been only months ago.
But that doesn't mean investors can sound the all-clear.
"The economy is still shrinking. It's just shrinking at a lesser rate," said Keith Hembre, chief economist at the First American Funds in Minneapolis.
Traders will take what they can get after a punishing drop that earlier this year left stocks down by half from their peak in October 2007. There are still doubts because earlier rallies fizzled, including a 20 percent jump from November to early January.
Like the latest run, the earlier pop came in a relative quiet stretch, before earnings reports began. But the traders and analysts who were burned in January by ugly fourth-quarter results appear more guarded. They've set expectations so low that most of the companies turning in results are beating Wall Street's forecasts.
Of the 52 companies in the Standard & Poor's 500 index that have so far issued reports on the first quarter, 32 have had numbers better than analysts expected, according to Thomson Reuters. A handful of the results were in line with expectations and 17 had reports that fell short of expectations.
The surprises have been fuel for the rally. The showing from banks in particular has helped ease some of investors' worries about the economy. Citigroup Inc., JPMorgan Chase & Co., Goldman Sachs Group Inc. and Wells Fargo & Co. all had better-than-expected news in the past two weeks.
But with so many companies coming in ahead of analysts' forecasts, there is a danger that traders could start to hit the "sell" button if they're no longer impressed by companies that jump a low hurdle. And, this week, there will be far more companies reporting than in recent weeks so trading could be choppier as investors look for clues about what a company's results might signal for the economy.
Among the hundreds of companies due to report are 3M Co., Bank of America Corp., Boeing Co., Coca-Cola Co., DuPont, IBM Corp., McDonald's Corp., Merck & Co., Microsoft Corp. and United Technologies Corp., whose businesses include Otis elevators and Carrier air conditioners.
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On Thursday and Friday, investors expect to get figures on sales of existing and new homes last month. A report is also due on demand for big-ticket manufactured goods.
The housing data could be a big force in shaping investors' attitudes, analysts say. A housing recovery is crucial to helping consumers feel more confident and to allow banks to put aside some worries about eroding asset values.
"If you're going to feel very positive about financials beyond the quarter, it does come down to whether you think the worst of housing is behind us," said Bob Browne, chief investment officer at Northern Trust Global Investments in Chicago.
Browne is encouraged by the signs of stabilization but he thinks the market still needs meatier data that give clearer indications of a healing economy.