The coming week is crunch time for European officials working to fix their debt crisis, and it's also the first big rush of the corporate earnings season in the U.S.
There is a parade of Fed speakers, including Fed Chairman Ben Bernanke on Tuesday, and a hefty calendar of economic data. Inflation and housing data top the list.
But analysts say Europe will be the big driver for markets, and it is important to see that officials remain on track in efforts to develop a bigger plan to stop the sovereign debt crisis from spreading through the banking system.
G-20 finance ministers were meeting over the weekend in Paris, and European finance ministers gather at the end of the week before attending a summit next weekend. They are working to structure a planahead of the G-20 leaders meeting in early November.
Stocks have been rallying on optimism Europe will find a way to shore up its banks and lever the bailout fund to stop the spread of the debt crisis. One option being discussed was a bigger role for the IMF, using money at its disposal or new money from its members.
The Dow jumped nearly 5 percentfor the week to 11,644, and is now slightly positive for the year. It is also up 9.3 percent from its Oct. 3 low. The S&P 500 rose nearly 6 percent to 1224, and it's 11.4 percent above its Oct. 3 low. The Nasdaq, driven by technology shares, was the best performer of the three, rising 7.6 percent to 2667. As stocks and other risk assets rallied, the euro also soared, gaining 3.8 percent for the week to 1.388.
"There's so many options on the table but what the market is reacting to is it appears that the message has gotten through — the first step to fixing a problem is realizing you have a problem," said Robert Sinche, head of global currency strategy at RBS.
"This weekend is pretty interesting. The last time (Treasury Secretary Timothy) Geithner was in Europe, it didn't go too well. This time it's the finance ministers from Australia, Canada, South Africa. Everybody's saying something needs to be done," he said.
Geithner told CNBC's Steve Liesman Friday that the U.S. plans to be an active partner as efforts intensify to resolve the European crisis. He said by next week IMF participants should have a "more comprehensive strategy" to solve the crisis and put in place a plan at the G20 summit, which begins Nov. 3.
Sinche said the market remains bearish toward the euro despite the seeming progress by European leaders to work toward a bigger plan to stem the crisis. "Is there a point this week where people really do throw in the towel?" he said. "...If people think there's something real coming here, it possible you could see a pretty significant squeeze."
About a fifth of the S&P 500 report earnings, including tech heavyweights Apple, Microsoft, Intel, and IBM. The major financials are also reporting — Citigroup, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley and American Express. Other blue chips include Coca-Cola, McDonald's, Johnson and Johnson and General Electric.
"It's earnings next week as much as anything," said Barry Knapp, head of U.S. equities portfolio strategy at Barclays. "There's some sectors that have been battered enough that there's room for upside. Tech, I would think would be the star next week. Industrials could perform well. I don't think it matters what the banks say, those stocks aren't going up," he said. JPMorgan, considered the best of the bunch, reported a disappointing profit decline Thursday and was cautious about the coming year.
"It's hard to see how even better than expected earnings (for financials) are going to matter, because the regulatory overhang is so big," he said.
Stocks were also lifted Friday as better-than-expected retail sales data showed that consumers were spendingin September, and revisions showed improved levels in July and August. Several economists raised their GDP forecasts for the third quarter to 2.5 percent or more after the 1.1 percent gain in September sales, the best performance in 11 months.
That could bode well for retailers in the holiday season, said Knapp, noting that the back-to-school season is the best indicator for holiday retail sales. However, he said the retail stocks have already made strong gains so they may not have much more upside.
What to Watch:
(all times Eastern Daylight Time)
Key Earnings: IBM, Citigroup, Wells Fargo
0830 a.m. Empire State Survey
0915 a.m. Industrial Production
0730 p.m. Richmond Fed President Jeffery Lacker on the economic outlook
0800 p.m. Chicago Fed President Charles Evans on monetary policy and the economy
Key Earnings: Bank of America, Coca-Cola, Johnson and Johnson, Intel, Goldman Sachs and Apple
0830 a.m. PPI
0900 a.m. TIC data
1000 a.m. National Association of Home Builders
0815 a.m. Boston Fed President Eric Rosengren opens Boston Fed conference on long tern effects of the great recession
0115 p.m. Fed Chairman Ben Bernanke keynotes at the Boston Fed conference
0630 p.m. Atlanta Fed President Dennis Lockhart on the economic outlook
Key Earnings: American Express, Travelers, Morgan Stanley, United Technologies, BlackRock, AMR
0830 a.m. CPI
0830 a.m. Housing starts
0200 p.m. Beige Book
0830 a.m. Boston Fed Rosengren addresses Boston Fed conference
0900 a.m. Atlanta Fed Lockhart on Latin America at Atlanta Fed's Americas Center event
0430 p.m. Atlanta Fed Lockhart on leadership and career at George Tech
Key Earnings: AT&T, Microsoft, Blackstone. L.M. Ericsson, Nokia, Eli Lilly, Union Pacific, Chipotle
0830 a.m. Initial jobless claims
1000 a.m. Existing home sales
1000 a.m. Philadelphia Fed survey
1000 a.m. Leading indicators
1015 a.m. St. Louis Fed President James Bullard opening remarks at St. Louis Fed's annual economic policy conference
1250 p.m. Cleveland Fed President Sandra Pianalto on manufacturing and the economic outlook
0800 p.m. Minneapolis Fed President Narayana Kocherlakota at Minnesota Council on Economic Education's Annual recognition of teacher excellence and innovation
Key Earnings: General Electric, McDonald's, Verizon, Honeywell, Schlumberger
0100 p.m. Minneapolis Fed Kocherlakota at Harvard Club of Minnesota on making monetary policy
Questions? Comments? Email us at email@example.com Follow me on twitter @pattidomm