Thanks to a nice surprise from Friday's jobs report, stocks managed to eke out some pretty modest gains last week even as investors continued to question just how long the rally can last.
The Dow is now up nearly 8.5 percent for 2017, thanks to about a half-dozen companies that are carrying most of the weight. But economic signs have been uneven, the political landscape in Washington, D.C. remains in disarray and the world is coming off a stormy summit of global leaders where anti-globalization rioters filled the streets.
So where does that leave you, the humble investor? With a week ahead filled with potentially important news to keep a close watch on.
The profit picture
An expected revival in corporate earnings has helped drive the market rally this year, and the first quarter did not disappoint, with growth of 13.9 percent for companies in the .
Second-quarter earnings season kicks into gear this week, with hopes still strong though not quite so optimistic. Bottom-line profit is expected to grow 6.6 percent from the same period a year ago on sales growth of 4.9 percent, according to market data provider FactSet. Energy is supposed to see the biggest growth; without the sector, the overall earnings growth forecast would fall to 3.8 percent.
The early companies to watch will be primarily banks. A slew of them report on Friday: JPMorgan Chase, Wells Fargo, Citigroup and PNC Bank.
Remember: Earnings figures are backwards-looking. What you need to look for is what CEOs expect in the future. That's where the market will be taking its cues.
Who to watch
Put Janet Yellen on your radar screen for the week. Yellen is the chair of the Federal Reserve and an influential voice on the economy.
She heads to Capitol Hill midweek to deliver her semi-annual monetary policy report. Though it sounds like dry stuff, these hearings sometimes get contentious. The Fed is in the early stages of steadily hiking interest rates, and that means higher bills for credit cards and any other kind of adjustable-rate debt.
Yellen's agency has plenty of critics on the Hill, and they'll likely grill her on issues ranging from why the Fed is determined to hike rates amid low inflation, and what it is doing to keep banks safe.
The Fed is expected to hike its benchmark rate at least once more this year, and to begin the process of unwinding the $4.5 trillion balance sheet it built up to pull the economy out of the Great Recession. Investors should expect some clues about where Yellen sees the economy and what the Fed will be doing going forward.
What to watch
There's a smattering of other events/data points/asset classes to keep your eye on during the week:
The Fed on Wednesday releases its periodic look at economic conditions around the country. The report, known as the Beige Book, isn't always a market mover, but you never know.
On Thursday, the Congressional Budget Office will be releasing its analysis of President Donald Trump's fiscal year 2018 budget.
Friday's Consumer Price Index report will provide a window on inflation. Yellen has attributed the recent softness to temporary factors like a reduction in costs for cellphone coverage plans and prescription drug declines. That thesis will be tested.
Watch bond yields. For most of 2017 the fixed income market had been doubting ambitious economic growth estimates and there were expectations that inflation would begin to set in. The recent rise in yields has surprised many on Wall Street.
The Congressional Budget Office may release its analysis of the latest Republican health care plan this week. Those numbers could go a long way toward deciding whether the GOP repeal-and-replace effort of Obamacare is successful.
The last word
U.S. dollar strength was supposed to be one of the big investing stories of 2017. Instead, the greenback surged after the November election but has been on a downward slope since the calendar flipped. Overall, the dollar is right about back to where it was last year at this time.
Jim Paulsen, chief investment strategist of The Leuthold Group, thinks the dollar may have room to run — to the downside. That's a contrarian call, considering the Fed raising rates usually leads the American currency higher.
Paulsen has some guidance for investors in the event that he's right:
If the U.S. dollar does surprise, and weaken, the primary impact would be intensified U.S. inflationary pressures. ... A decline in the U.S. dollar would likely boost commodity prices and investors may want to consider adding some real asset exposure during the balance of this recovery. ... U.S. dollar weakness favors international over domestic investments. ... A new downward trend in the U.S. dollar would likely push the price of crude oil above $60 for the first time in more than two and one-half years. This would suggest opportunities among the beaten-down energy stocks, the materials sector, and among industrial stocks. ... Financial stocks should remain market leaders while selling pressures may intensify in the utilities, telecom, and consumer staples sectors. ... Cyclical sectors and value stocks should outpace more growth-oriented parts of the stock market. ... Finally, a period of dollar-induced reinflation argues investors should overweight small- and mid-cap stocks.
He concludes:
Perhaps the U.S. dollar will remain range bound during the rest of this year and financial market trends will be driven by other events. However, the fundamentals underlying the U.S. dollar have turned less favorable in the last couple years, increasing the risk that the U.S. dollar breaks south and captures the attention of investors.
So pay attention and go make some money!