"The economy is better than we ... expected and [the stock market is] going to continue a bit here ... ignoring the 'sell in May' argument, which I still think is valid," said BTIG global market strategist Dan Greenhaus.
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In the coming week, the pace of the earnings season will be slower, but there are still dozens of S&P 500 companies, including entertainment companies like Disney and News Corp, and energy names like Marathon Oil, Anadarko and Holly Frontier. Whole Foods and Groupon also report. Berkshire Hathaway also holds its annual meeting Saturday, and investors will be watching for comments from Chairman Warren Buffett, who also appears on "Squawk Box" Monday morning.
There is very little on the economic calendar, but economists will be watching consumer credit, wholesale trade and Thursday's weekly jobless claims, as well as inflation data from China Wednesday. One of the highlights of the week could be the half dozen or so Federal Reserve speeches including Fed Chairman Ben Bernanke who speaks on monitoring finance at Chicago Fed Annual Conference on Bank Structure in Chicago Friday morning. Kansas City Fed President Esther George, the FOMC's lone dissenter, speaks Friday afternoon and Richmond Fed President Jeffrey Lacker speaks Thursday.
"You know where they all stand, so there won't be any surprises," said Diane Swonk, chief economist at Mesirow Financial. At the Chicago Fed, "They may be talking more importantly about the soundness of the banking system, and they're also testing banks on interest rate exposure … I wouldn't be surprised if they talked about that a little bit. They want to be measured and cognizant about the efficacy and costs of what they're doing. They're worried about unintended consequences."
Two events of the past week should carry over and act as positives. One is that the Friday's April jobs report was not as dire as many investors expected, and while job growth looks slower, it does not signal an economy falling off a cliff. There were also large revisions to February and March reports that were encouraging. The 50,000 added to March's number pushed nonfarm payroll growth to 138,000, and February's report, already a strong 268,000, was revised to 332,000.
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"The economy is resilient, but the reality is we still had this slowdown," said Swonk. But compared to slowdowns in the past several years, it's not as bad. "It's a 'B' economy as opposed to a 'C' or 'C-' economy that we've had so far. Last year, it felt like we were falling into recession. This year, it feels like a speed bump."
The other factor is the Fed, which reaffirmed for markets Wednesday that it will continue to ease by keeping rates low and continuing its $85 billion in monthly purchases of Treasurys and mortgage securities. But it also signaled that its asset purchase program has a two-way lever, and that it could increase its purchases, just as well as decrease them, if the job market or inflation warrant it. The Fed met in the past week, the day before the European Central Bank cut its main refinance rate, to a half percent, as expected. The refinancing rate, now at a record low, applies to more than 850 billion euros ($1.1 trillion) in ECB loans.
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"The world economy is actually better now and yet the liquidity being created is greater now than before. We've got a lot more padding for unexpected events," said Stuart Freeman, chief equity strategist at Wells Fargo Advisors.
Freeman said the market could dodge the "sell in May" phenomena, and he doesn't expect a selloff in the magnitude of 10 percent or greater, barring some unexpected event. Analysts had been expecting earnings to hurt the market, but stocks have so far shaken off the first quarter's lackluster results. Of the 80 percent of the S&P 500 companies that have reported, 68 percent have beat on earnings, according to Thomson Reuters.
Profits are up 5.7 percent, well above what was expected, according to Thomson Reuters data. But the misses on the top line continue, and 54 percent of the companies have missed their revenue estimates.
"I think the earnings story is being told by the market already, and the market is looking ahead of this quarter's earnings. I don't think earnings are making a difference here," said Freeman.
In the week ahead, "I don't think the Fed will be saying anything different than it has been saying. It looks like a pretty quiet week next week," he said. "For the last couple of months, at least, the market's done a better job of favorably moving on negative news than it did a year ago. If we have a quiet week, the liquidity is likely to help the market, or allow the market to at least run sideways for a period of time."
Freeman raised his target range before the S&P 500 several weeks ago, to 1,575 to 1,625 at year end, and he sees stocks as a good place to stay. "You've seen some trickling of individuals into equities, but certainly no frenzy. Equities, at this point, if you're looking versus cash, the cash vehicle is looking negative really, or you look at bonds, where there's not much potential," he said.
The Dow in the past week closed up 1.8 percent at 14,973, and the S&P 500 rose 2 percent to 1614. The Nasdaq, helped by a big move up in Apple, was up 3 percent for the week. The S&P tech sector gained 4.6 percent, and was the week's best performer. Energy and materials, two sectors that had been lagging were the next best performers. Utilities, among the year's best performers, was the worst performing sector of the week, down 0.3 percent.
As for the bond market in the coming week, traders will be watching The Treasury's auctions, after the past week's big move in rates. Friday's move was the biggest one-day move since September.
"The whole global liquidity push is continuing," said John Briggs, senior Treasury strategist at RBS. "Demand is really going to be coming out from Japan. It's going to be increasing, especially if we get a little more backup in rates." The Treasury is auctioning $32 billion 3-year notes, $24 billion 10-years and $16 billion 30-year bonds, Tuesday, Wednesday and Thursday respectively.
"I do think there's going to be buyers here at higher levels, incrementally," he said.
