Stocks enter the week ahead locked in an intense tug-of-war between investors who hope the worst is over and those who expect more bad economic news to derail the market's rally.
Traders, for weeks now, have been expecting a pull back after the market's near 30 percent run. But stocks continue to hold gains despite the past week's slight decline.
"There's so much cash on the sidelines, it needs to find an entry point. Any time we have a dip, buyers are coming in," said BlackRock Vice Chairman Robert Doll.
In the coming week, another wave of earnings will be big news for markets, and there is also a Fed meeting, first quarter GDP and monthly auto sales. The focus will also be on banks, as investors await the May 4 release of government stress test results on 19 institutions that received government funds.
- The World's 15 Biggest Debtor Nations
- The 15 Biggest Holders of US Government Debt
- America's Greenest Companies
"The economic data stream will be be busier, but it will certainly take a back seat to earnings," said Art Hogan, managing director with Jefferies. "We've had a pretty significant run. I think the market is proving that we do continue to have a pattern of news that is more good than bad, and I think that continues next week and we do continue to trend higher."
Earnings have not been the negative catalyst some had feared this quarter. "We had about a third of the S&P 500 so far, and the beat to miss ratio is higher than average. About 70 percent have met or beat estimates," Hogan said. In the fourth quarter, only 30 percent met or beat estimates.
Stocks broke a six-week winning streak and were slightly lower in the past week. The S&P 500 fell 3 points for the week or 0.39 percent to 866 but it is still 28 percent higher than its March low. The Dow was off 0.7 percent at 8076, but the Nasdaq rose 21 points or 1.3 percent to 1694.
The S&P is down 4.1 percent for the year, but the tech-driven Nasdaq is positive, up 7.4 percent for the year and at its highest level since early November. Materials stocks were the best performers, up 2.2 percent for the week, followed by tech shares, which rose nearly 2 percent. The worst performers among S&P sectors were health care, down 3.7 percent and consumer staples, down 2.8 percent.
Doll, also global chief investment officer for equities, said there's more room left in the market's current drive higher, and any pull back should only be in the four to five percent range, versus the deeper declines some expect.
"I still think there's more left in it. I'm still using a 1,000 [S&P] target for the end of the year," Doll said. "For that to happen, it's going to take continued reflationary activities working and more visibility that the economy is less bad, and that it's getting better."
Doll does believe stocks bottomed in early March, and that the worst period for the economic downturn was in the fourth and first quarters. "The worst six months of the recession are now officially in the rearview mirror and that's the good news, unless there's something I don't know coming," he said.
"Don't expect it to go straight up. We may have bumps but maybe not as big as we had," he said. "I think the trend is up."
What Else to Watch
President Obama, on his 100th day in office Wednesday, plans an 8 p.m. press briefing. It is expected he will provide a progress report on his programs including an update on the financial and auto industry bailouts.
From 'Fast Money':
Both of those topics will again dominate the news in the coming week. The perimeters for the government's stress tests for the largest institutions receiving funds from the Troubled Asset Relief Program was much anticipated but received mixed reviews when it was released Friday. Some analysts said it disappointed for its lack of detail. Traders expect rumors and speculation to surround the financial sector ahead of the May 4 release of results for individual institutions. Banks received those results from the Fed Friday.
Bank of America's annual meeting Wednesday also promises to get a lot of attention, particularly after reports this past week that CEO Ken Lewis told New York's Attorney General that Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson told him to keep mum about Merrill Lynch's deteriorating condition during its merger with Bank of America. Some investors have been calling for Lewis' ouster and the meeting promises to be raucous.
Another major story investors are watching is the restructuring of the auto industry, as Chrysler flirts with bankruptcy and heads to a merger with Fiat. General Motors plans to shut down much of its manufacturing for two months and is expected to eliminate the Pontiac brand. Meanwhile, Ford on Friday surprised with a smaller than expected loss, indicated it was burning through less cash, and said it is beginning to see a turn.
"A loss to one is an opportunity to another," said Diane Swonk, chief economist at Mesirow Financial. "We know in the core of GM that emerges there's no way they can keep all that manufacturing going."
"This is the crescendo of what has been a four-decade evolution. Did anyone even notice there were more than 600,000 workers in 1974 versus 50,000 at GM today? That restructuring has already happened," she said.
From Jim Cramer's 'Mad Money':
Traders in the Treasury market expect a deluge of new issuance in the coming week. The government said it would auction $100 billion of notes. The 10-year Friday finished the week with a yield of 2.996 percent. Its yield had hit 3 percent during Friday trading as investors sold bonds.
The big data point in the coming week is Wednesday's release of first quarter GDP, expected to show a decline of a 4.6 percent. Economists expect it to be a shallower decline than the 6.3 percent in the fourth quarter.
"I think it could be down close to 5.5 percent," said Swonk. "I think the second quarter could be less than 1 percent but that's not hard to do. You've had two major contractions and a major decline in inventories and you have the housing market starting to zero out, in activity, not in price." She said if housing does hit bottom, it could become a small positive contribution in the second half.
"The good news is we're no longer free falling. We've opened the parachute. But we haven't landed yet, and we don't know where we're going to land," said Swonk.
Swonk said the Fed, after its two-day meeting Wednesday, may release more detail on what type of securities it will buy.
Other data expected in the week ahead includes S&P/Case Shiller Home prices and consumer confidence Tuesday. Weekly jobless claims, personal income, consumer spending, employment costs, and Chicago purchasing managers index are reported Thursday. ISM manufacturing, consumer sentiment, factory orders and monthly auto sales are Friday.
On Monday, FDIC Chairman Sheila Bair speaks at the Economics Club in New York at midday. Treasury Secretary Tim Geithner participates in a conference on China in Washington Friday, and St. Louis Fed President James Bullard speaks in Hot Springs, Ark. Friday.
Oil finished the week up 1.75 percent at $51.55, but on Friday it bounced nearly 4 percent higher along with other commodities.
More From CNBC.com
- Get After-the-Bell Dow 30 Quotes
- Credit Spreads and Libor Data
- Futures and Pre-Market Data
- Currency Data
"We've been cueing off the equities markets for some time. That's part of the rebound. Given the fundamentals it's hard to justify at these levels. It's still the forward looking prospects about demand making a comeback, and it's getting priced in ahead of time," said John Kilduff of M.F. Global.
Kilduff said oil traders have also been watching rising tensions in Pakistan, where the Taliban has taken new territory closer to Islamabad. "At some point, there could be a security premium that will build in if the situation in Pakistan escalates," he said.
The dollar fell 1.6 percent against the euro in the past week and more than 2 percent against the yen. It should stay under selling pressure in the week ahead, according to Brian Dolan, chief currency strategist at Forex.com.
"We definitely had a bad week for the dollar. Next week more likely than anything we'll have more dollar weakness. The dollar yen has dropped below key levels and the euro is stronger on better data. The dollar is one of the more clear cut moves, and gold as well," he said.
Gold finished Friday at $913.60 per troy ounce, up 5 percent for the week. "While gold holds above 905, it's got potential up to 930 initially," Dolan said. "Theoretically the uptrend is resuming again," he said.
There's a heavy calendar of earnings news in the coming week, with 146 S&P 500 companies reporting. Those companies include Verizon, Whirlpool, Humana, and Corning on Monday. Tuesday's reports include BP, Pfizer, Bristol-Myers, FPL, U.S. Steel, Valero, Dreamworks, Sun Micro, Massey Energy, VF Corp and McGraw Hill. (See more earnings below quote box.)