Wall Street has set its sights beyond a relatively low-impact earnings season and is now looking for bigger and better things.
A reading later this week on gross domestic product and a big Fed meeting next week have moved to the forefront of investors' radar screens as they look for real signs that a recovery has taken hold.
About 80 percent of Standard & Poor's 500 companies have beaten earnings estimates, but the seven-month stocks rally has slowed significantly since the season began.
Removing uncertainty over whether a further runup is justified is now job #1.
"It's hard to fight the tape. The economic data that has been causing the tape has confirmed that the process of global recovery and domestic recovery here in the US is in place," says John Stoltzfus, director and senior market strategist at Ticonderoga Securities in New York. "But it is tenuous. There are still many questions related to sustainability."
Some of those questions will get answers over the next two weeks.
On Thursday, the government will release its latest GDP numbers, and the report is expected to show the first positive quarter of growth since the recession began. The second-quarter numbers showed a drop of 0.7 percent, a big improvement from the first-quarter's reading of a 6.4 percent decline.
Economists are looking this time for a positive reading of at least 2.5 percent. That would jibe with projections from the National Bureau of Economic Research and Fed Chairman Ben Bernanke that the recession indeed is over and the economy is beginning to show real growth.
A disappointment in that reading could be dangerous to the market's aggressive rally, particularly if the employment picture continues to be weak.
"Signs of recovery should be evident across most categories, though we suspect that weak September new home sales and personal income data will remind investors that the recovery will likely be choppy," Ethan Harris, BoA Merrill Lynch Global Research analyst, wrote in a research note. "Falling wage and salary growth likely will also be apparent in the 3Q employment cost figures, which are expected to show new lows in compensation."
Weekly jobless claims figures also will come Thursday, with the market anticipating a continued slowing to 520,000.
Those economic signals in turn will be watched for how they impact Fed policy making. The Fed's Open Market Committee meets next Tuesday, and the statement released from the meeting Wednesday should indicate the central bank's position going forward.
The Fed's key interest rate now wavers between zero and 0.25 percent. There is virtually no expectation that the rate will change following next week's meeting, but that's not the case for 2010. Fed-fund futures show about a 50 percent chance for a rate hike in March, but a nearly fully priced-in hike to 0.50 percent in May.
The Fed likely will make a move once it sees inflation becoming a threat.
"Bernanke's been very good at telegraphing punches in terms of what is to be expected out of Fed meetings," Stoltzfus says. "The Fed has been clear that as soon as it sees any degree of sustainability in growth and any likelihood that inflation could be rearing its ugly head in a worrisome manner, they will be addressing it."
Indications for aggressive monetary tightening could be a market mover in either direction.
"The language might start changing especially if we get a positive GDP number on Thursday," says Don Humphreys, president of Voyager Wealth Management in Harrington, N.J. "Some people are worried that's going to have a negative impact on stocks because liquidity will start coming out.
"At the same time, there's a lot of money flowing to the bond market. Once there is some talk of rising interest rates, that money will be coming out of the bonds. Stocks will be the next logical step for that flow of funds."
If recent behavior is an indication, investors are waiting for clearer signs before placing their bets.
That hasn't been the case over the past several months. Investors have driven the averages far above the March lows on anticipation that third-quarter earnings would show the formations of a recovery.
But when earnings actually started rolling in, investors were unfazed and have done little net buying since the Dow topped 10,000 on Dec. 14.
Long-term confidence will be key to push the market higher.
"The cap to all this is going to be when you create more jobs, but once you start creating more jobs this market could go up 2,000 points from here," says Nadav Baum, managing director of investments at BPU Investment Management in Pittsburgh. "I'm starting to see better things coming in. I'm becoming very positive. I like that there's a wall of worry out there. Some people still feel this is a head-fake. You want that."
Baum is using the market's rebound as an opportunity to stock up on some of Wall Street's biggest names—AT&T , Coca-Cola and the SPDR Industrial ETF —and looking for dividends, a strategy gaining popularity as investors continue to buy into the rally.
"It would seem a global recovery is in place that would continue to work well on equity markets," Stoltzfus adds. "We would think that the markets are more likely to grind higher than to start any kind of downdraft that would be significant enough to retrace any of the steps that we have taken."