Back to the future

NEW YORK (CNNMoney.com) -- After weeks of conceding leadership to corporate earnings and the elections, the economy is set to reclaim the focus on Wall Street in the week ahead.

The week brings a bevy of relevant, potentially market-moving reports, not to mention some quarterly earnings from the retail and tech sectors.

The October retail sales report is due, as well as earnings from Wal-Mart Stores (Charts), Home Depot (Charts), Target (Charts) and others. Tech heavy-hitters Dell (Charts) and Hewlett-Packard (Charts) reveal their results too. (see chart).

The minutes from the last Federal Reserve policy meeting arrive mid-week, giving investors more clarity about how the central bankers saw the economy in late October. A bevy of readings are due on the manufacturing sector. And the October housing market reports are due for release Friday.

But perhaps of most interest to investors will be the October inflation reports, with the Producer Price Index (PPI) and so-called "core" PPI due Tuesday and the Consumer Price Index (CPI) and "core" CPI due Thursday. The core numbers exclude volatile food and energy prices. (See chart for details.)

"If we get an ugly inflation number (in the) next week that could throw investors off," said Robert Philips, president and chief investment officer at Walnut Asset Management.

"Right now, people are expecting that the Fed will be out of the picture until next year, and that at some point they will start cutting interest rates," he said. "If inflation is not moderating, there's a risk to that scenario."

But, with the optimism that has been infusing markets lately, investors might even be able to withstand disappointment about inflation during the week, provided the other economic news is upbeat enough.

Analysts have been saying for weeks that stocks are due for a pullback, considering that the most recent leg of the market rally is now in its fourth month. The broader bull market is 4 years old - ancient, by historical standards.

But there seems to be little in place at the moment to spark any kind of big selloff. Earnings in the third quarter have been strong, oil prices have been backing off for the most part and many investors seem to believe that the economy is headed for a so-called "soft landing."

The sentiment is so bullish right now that even last week's congressional elections couldn't ruffle investors. Surprising some market watchers, traditionally Republican Wall Street took a mild response to news that the Democratic Party will regain control of both houses of Congress for the first time since 1994.

With the exception of a one-session selloff, stocks rose last week.

Sure, drug and healthcare stocks slipped on worries about potential legislation coming out of a Democratic-controlled Congress, but beyond that the reaction was pretty ho-hum.

That's partly because investors know gridlock is good. When the White House and the Congress are controlled by different parties, it limits the power of either to push through big legislation.

Or the market response could be a reflection of that mass bullishness that seems to be in place. And there, maybe, is the concern.

"At the start of the rally, investor skepticism was still in place and that helped take the edge off the dips (in the rally)," said Steven Goldman, market analyst at Weeden & Co. "But now, there is such broad enthusiasm that there is maybe a risk."

He was referring to the seemingly counter-intuitive wisdom that says, when everyone is bullish about stocks, it may be time to get out because the tide could turn.

But Goldman and the other analysts were reluctant to say the market was likely to see a pullback just yet.

"I do think we have room for additional increases in the market through the end of the year," said Peter Dunay, investment strategist at Leeb Capital. However, with the Dow already up about 13 percent year-to-date, "you're not talking about blockbuster increases from here. You're talking about smaller gains."

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