Stocks: Rally under stress
A two-month old stock advance hits up against more profit reports, the April jobs report and the results of big bank tests.
NEW YORK (CNNMoney.com) -- The two-month old stock market rally looks to extend its legs in the week ahead, provided Wall Street can surmount a few big hurdles.
The results of Treasury's long-awaited stress tests of the leading banks are due Thursday; the April employment report is due Friday; and a smattering of big corporations report results.
"The results of the stress tests will be interesting as there have been some questions about whether the government will be too gentle on the companies," said Matt King, chief investment officer at Bell Investment Advisors.
King said that the April employment report, although expected to show steep job losses, is unlikely to fluster stock market participants beyond the short term. That's because historically unemployment tends to keep rising even as a recession is ending.
Standouts on the corporate front include Sprint Nextel (S, Fortune 500), Walt Disney (DIS, Fortune 500), Cisco Systems (CSCO, Fortune 500), AIG (AIG, Fortune 500) and others.
Better-than-expected earnings and economic reports have supported stocks of late, fueling bets that the worst is over.
Stress tests: The results of the government "stress tests" of the largest U.S. banks will be made available Thursday afternoon. The results were initially due to be released Monday.
Information will be made available on the 19 individual companies as well as the broad group of corporations that have been tested. Results include estimated loan losses should the economy deteriorate more rapidly as well as estimates of how much additional capital banks would potentially need to function.
"We've been waiting on the results for weeks, but because the health of the banks has stabilized, there's not a sense of urgency to get those results," said David Levy, portfolio manager at Kenjol Capital Management.
He said that there are reportedly a half dozen banks that are not as well capitalized as they should be and they've been given until Thursday to work through some of the issues.
"By giving them a little more time, there's not going to be a rash reaction in the markets," he said.
Last week, reports said early results showed both Bank of America (BAC, Fortune 500) and Citigroup (C, Fortune 500) and will need to raise more capital.
The second-quarter so far: Stocks rallied in April, with the S&P 500 (SPX) spiking 9.4% as investors continued to jump back in after the broad index fell to a 12-1/2 year low in March. For the month, the Dow Jones industrial average (INDU) gained 7.3%, also rebounding from a 12-year low.
The Nasdaq (COMP) gained 12.3% and is the only one of the major gauges to be in the black year-to-date. The Nasdaq has risen for eight weeks in a row, while the S&P 500 and Dow have risen for seven of the past eight weeks.
Profits: Stocks are on track to post the seventh straight quarter of year-over-year profit declines, according to earnings tracker Thomson Reuters.
With roughly two-thirds of the results already out, S&P 500 profits are expected to have declined by 35.1% from a year ago. Healthcare is the only one of the S&P's 10 sectors expected to see growth. The biggest decliners are consumer discretionary - which includes the automakers - materials and energy.
On the upside, companies as a whole have been beating analysts' expectations by a bigger margin than in previous quarters.
"The numbers have come down to such levels that companies are not only beating forecasts, but beating by a lot," said John Butters, senior research analyst at Thomson Reuters.
Bank of America (BAC, Fortune 500), Goldman Sachs (GS, Fortune 500), Citigroup (C, Fortune 500) and Ford Motor (F, Fortune 500) are among the big companies that have reported better-than-expected results. However, profits remain in a slowdown period for the time being.
For the second quarter, analysts expect profits to decline 34.6% and for the third quarter, profits are expected to have declined 21.1%.
Monday: Sprint Nextel reports results before the start of trading. The telecom is expected to have lost 5 cents per share after gaining 4 cents per share a year ago, according to Thomson Reuters estimates.
Tuesday: Walt Disney is expected to have earned 40 cents versus 58 cents per share a year ago. The Dow component reports results shortly after the close of trading.
Wednesday: Cisco Systems reports results after the close of trading. The tech bellwether is expected to have earned 25 cents per share versus 38 cents a year ago.
Thursday: AIG reports results after the close of trading. The financial firm - bailed out by the government last fall - is expected to report a loss of 6 cents per share versus a loss of $1.41 a year ago.
Monday: Reports are due shortly after the start of trading on pending home sales and construction spending.
The March pending home sales report, from the National Association of Realtors, is due out before the start of trading. Sales are expected to hold steady following a surprise rise of 2.1% in February, according to a consensus of economists surveyed by Briefing.com.
March construction spending, from the Census Bureau, is expected to have fallen 1.4% after falling 0.9% in February.
Tuesday: The Institute for Supply Management's April services sector index is due out shortly after the start of trading. The ISM index is expected to have risen to 42.0 from 40.8 in March.
Also Tuesday morning, Federal Reserve Chairman Ben Bernanke heads to Washington to give his economic outlook before the Joint Economic Committee.
Wednesday: Payroll services firm ADP releases its April reading on private sector employment, seen as a harbinger for the government's big report due out Friday. Employers are expected to have cut 643,000 from their payrolls after cutting 742,000 in the prior month.
The government's weekly report on crude inventories is also due in the morning.
The Senate Banking Committee holds a hearing on banks that have been deemed "too big to fail." Federal Deposit Insurance Corp. chief Sheila Bair is due to testify. She is expected to reiterate calls for creating a system that would allow regulators to dismantle large financial institutions that are failing.
Thursday: Reports are due before the start of trading on first-quarter productivity and first quarter unit labor costs.
Productivity is expected to have risen 0.9% after falling 0.4% in the last quarter of 2008. Unit labor costs are expected to have risen 2.5% in the first quarter after rising 5.7% in the fourth quarter of 2008.
Thursday also brings the weekly jobless claims report from the Labor Department and the March consumer credit report from the Federal Reserve.
Fed Chairman Bernanke also gives the keynote address at the Federal Reserve Bank of Chicago's Conference on bank structure and competition Thursday morning. His topic is banking supervision.
Friday: The government's April employment report is due out before the start of trading. Employers are expected to have cut 620,000 jobs from their payrolls after cutting 663,000 the previous month. The unemployment rate, generated by a separate survey, is expected to have risen to 8.9% from 8.5% in March.
Friday also brings the March reading on wholesale inventories, which is not usually a big market mover. 
