New highs, but now a big test
Goldman Sachs, Bank of America, Google, IBM and Intel are among the heavy-hitters due to open their books, giving the rally its first big challenge in weeks.
NEW YORK (CNNMoney.com) -- The stalled-out stock-market rally got a reboot last week, pushing the Dow and S&P 500 to fresh one-year highs. But that resilience will be tested in the week ahead with the release of the first big batch of third-quarter financial results.
Dow components Bank of America, JPMorgan Chase, IBM, Intel, Johnson & Johnson and General Electric are all on tap.
Google, Nokia, Citigroup and Goldman Sachs are among the other big names due to report.
"Everyone knows Goldman is going to blow it out of the water, but we'll have to see what the other banks say," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.
Rovelli said that the major gauges are sitting at key levels, with the S&P 500 at 1,071 and the Dow edging ever closer to 10,000. That puts stocks in position to either push a lot higher or see another 3% to 5% pullback, he said.
"If we get some real revenue growth in the next few weeks, you could see a bigger move up," Rovelli said.
But a big surge in profits isn't likely, said Tom Hepner, financial advisor at Ruggie Wealth Management. And with the S&P 500 having spiked 58% since bottoming at 12-year lows in March, stocks remain vulnerable.
"I think the S&P is overextended and the expectations have gotten too high," Hepner said. "You could see a gradual run off over the next six weeks before some of the end of year buying comes in."
Gearing up for results: Dow component Alcoa (AA, Fortune 500) is the only major company to have reported results so far, and it threw investors for a loop last week by reporting a profit instead of a quarterly loss.
One company doesn't change the overall outlook -- broad S&P 500 earnings are still expected to have fallen more than 20% versus a year ago, according to Thomson Reuters. Even a burst of better-than-expected results won't be enough to turn the final number positive, Thomson analysts' say, with the S&P 500 set to see the ninth straight quarter of declines, the longest streak in a decade.
But what was notable about Alcoa was that the aluminum maker reported both earnings and revenue that topped estimates, a key for investors after the second quarter. In the April through June period, more than 70% of S&P 500 companies reported better-than-expected earnings, but the results were largely driven by cost-cutting amid the recession. Meanwhile, revenue -- the so-called top-line -- barely budged.
This time around, Wall Street wants to see signs that revenue is at least stabilizing, if not improving.
"Everyone is focused on topline growth," said Rovelli. "Better-than-expected earnings won't be enough this time."
Monday: There are no market-moving profit reports due out Monday.
Tuesday: Dow component Johnson & Johnson (JNJ, Fortune 500) reports results in the morning. The consumer products firm is expected to have earned $1.13 per share versus $1.17 per share a year ago, according to a consensus of analysts surveyed by Thomson Reuters.
Thursday: Citigroup (C, Fortune 500) is due to report results before the start of trading. The troubled financial firm is expected to report a loss of 21 cents per share versus a loss of 60 cents a year ago.
Nokia (NOK), also due Thursday morning, is expected to have earned 18 cents versus 33 cents a year ago.
Friday: Dow component Bank of America (BAC, Fortune 500) reports results before the start of trading. The financial firm is expected to have lost 6 cents per share after earning 15 cents per share a year ago.
Monday: The bond market is closed for the Columbus Day holiday, but other financial markets remain open.
Tuesday: Treasury auctions $30 billion in 6-month notes and $30 billion in 3-month notes.
Federal Reserve Vice Chairman William Dudley and Fed Governor Donald Kohn are both due to speak.
Wednesday: Last week a variety of individual chain stores reported better-than-expected September sales. This week, the Commerce Department releases its broad retail sales report.
Sales are expected to have dropped 2% in September after rising 2.7% in August, according to a consensus of economists surveyed by Briefing.com.
August business inventories are expected to have fallen 0.8% after falling 1% in July. The Commerce Department report is due in the morning.
Also on tap: September import and export prices in the morning and the minutes from the last Fed policy meeting in the afternoon.
Thursday: The Consumer Price index (CPI), a measure of consumer inflation, is expected to have risen 0.2% in September after rising 0.4% in August. The so-called Core CPI, which strips out volatile food and energy, is expected to have risen 0.1% after rising 0.1%.
The Philadelphia Fed index is due at around 10 a.m. ET. The index is expected to have dipped to 12.3 from 14.1.
The weekly jobless claims report from the Labor Department is also due, however, no economists' estimates were available as of Friday.
The weekly crude oil inventories report is also due in the morning.
Fed Governor Daniel Tarullo is due to speak.
Friday: The October consumer sentiment index from the University of Michigan is due shortly after the start of trading. The always market-moving index is expected to have held steady at 73.5, where it stood in October, according to estimates.
Also Friday, government readings on September industrial production and capacity utilization are due. Production is expected to have risen 0.1% after rising 0.8% in the previous month. Capacity utilization is expected to have risen to 69.7% from 69.6% in August.