As earnings season winds down, analysts are already looking for the next catalysts that will drive the markets.
Stocks have rallied, with the Dow up 21 of the last 24 sessions, largely because investors were encouraged by stronger-than-expected corporate earnings. With about two-thirds of the S&P 500 reporting so far, first-quarter earnings have risen 7.9%, more than double the 3.3% analysts were expecting at the start of earnings season in early April.
"For all intents and purposes, we are pretty much through with earnings season," said James Maguire, floor broker for Christopher J. Forbes. "Now the focus in the market is going to shift to something else. Among the things we are looking at--certainly, the economic data."
The next major piece of economic data will be the April employment report, which will be released on Friday. Economists expect non-farm payrolls to increase by 110,000. Many analysts are saying economic data now has to be robust to move the markets higher.
Worried About Slowdown
"People are more worried about a slowdown in the economy than inflation," Alec Young, equity market strategist for Standard & Poor's, told CNBC.com. "The focus is on slowing growth because of housing. We want to see good numbers from the monthly payroll data because that strong labor market is holding up the consumer."
Analysts also point to the flurry of merger and acquisition news that's contributing to positive investor sentiment. This week saw more takeover talk after Rupert Murdoch's News Corp. offered to buy Dow Jones for $60 a share, setting off a buzz of takeover speculation in media stocks.
Frederick Dickson, chief market strategist for D.A. Davidson, believes the markets will have a bit of a lull as earnings season ends, but deals could keep stocks interesting.
"I think we'll get a dip, but it won't be a cavern because global markets are strong and M&A activity is strong," said Dickson. "If this deal pace continues, we're not going to get much of a lull."
Allthough most companies have reported, analysts warn earnings season isn't over until it's over. Investors will still be looking at the remaining one-third of the S&P 500 for signs of a slowing economy.
Watching Retailers
"I'll be watching the retailers reporting the third week in May," said Dickson. "I expect there may be some disappointments in those numbers after several retailers issued some guidance warnings."
No matter which catalysts move the market next, many analysts still believe the overall trend for stocks is higher, even from these lofty levels.
"You've got lots of cash on corporate balance sheets and a global economy that continues to move along real well," said Jeff Layman, director of investment services at BKD Wealth Advisors. "We expect to see more record highs as the year progresses."
"We're definitely still optimistic," said Young. "We will certainly challenge the all-time high of 1527 on the S&P 500. We think stocks will have more moderate returns this year than in previous years, but it's still more money than you're going to make in bonds or cash."