Keeping the bull running

NEW YORK (CNNMoney.com) -- Investors will return from a long holiday weekend to face earnings from a couple of marquee names, a key report on inflation, and more questions about the strength of the long-running bull market.

But with the latest bout of strength in the market unlikely to evaporate just yet, analysts say the sailing should remain smooth, at least for now.

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"In the short term, the market can probably hold its recent gains," said Peter Cardillo, chief market economist at Avalon Partners. "But next week we do have inflation news and speeches from some Fed governors, so we could be subject to those events."

Stocks rallied last week - with the Dow Jones industrial average hitting a fresh all-time high - as investors welcomed Ben Bernanke's semi-annual monetary policy report to Congress. In it the Federal Reserve Chairman portrayed an economy that is slowing at the moderate pace the central bank wants, amid a gradually improving inflation picture.

The comments illustrated the best-of-both-worlds scenario investors like, Wall Street's so-called Goldilocks economy of "not too hot, not too cold" growth.

The comments also convinced investors that the Federal Reserve is likely to hold pat on interest rates for the foreseeable future and possibly cut rates by the end of the year - rather than boost rates further as some had feared.

As a result, "investor sentiment has improved," said Jack Ablin, chief investment officer at Harris Private Bank.

"A few months ago, investors thought there would be a hike by June, now they think there could be a cut by December," he said. "What investors are latching on to and reacting well to now is not so much the direction of rates, but the flexibility the Fed is showing it is capable of."

This factor should continue to support stocks in the shortened week ahead, with all financial markets closed Monday in observance of Presidents' Day.

Bernanke's testimony may be over, but the week ahead still keeps the focus on the Fed and the economy.

The minutes from the January policy meeting are due for release on Wednesday. While they probably won't differ much thematically from Bernanke's testimony, they will nonetheless be of interest.

Federal Reserve Governor Susan Schmidt Bies speaks at Duke on Tuesday. Bies recently announced her resignation from the Fed's policy board, effective late March. Federal Reserve Governor Donald Kohn speaks Wednesday on financial stability. Also Wednesday, San Francisco Federal Reserve Bank president Janet Yellen speaks on the economy, also on Wednesday.

In a week light on economic news, the critical report will be Wednesday's January Consumer Price Index (CPI) and the Core CPI, which excludes volatile food and energy prices. Both are expected to show modest gains, reinforcing bets that inflationary pressures are being contained.

"I think CPI will be important, in terms of being watched by the Fed and by those that watch the Fed," said Ablin. Wednesday's leading economic indicators report will also be relevant, Ablin said.

Recent economic reports have been mixed, and that has actually supported investor sentiment, as it reinforces the idea that a gradual slowdown is in place, said Alan Gayle, senior investment strategist at Trusco Capital Management.

Friday brought the latest discouraging reading on the housing market - and a report that showed a retreat in investor sentiment. However, investors seemed to take the reports in stride, with stocks ending the session barely lower.

"A slower growth rate is not comprised of uniformly lower numbers, it's comprised of a mix of stronger and weaker numbers," Gayle said.

Next week also brings a few key earnings reports, including Dow components Home Depot (Charts), Wal-Mart Stores (Charts) and Hewlett-Packard (Charts) on Tuesday. Other reports due later in the week include Abercrombie & Fitch (Charts) on Wednesday and JC Penney (Charts) and Toll Brothers (Charts) on Thursday. (see chart for details.)

While those reports will likely draw attention, they aren't likely to change the perception of overall fourth-quarter earnings.

With more than 80 percent of the S&P 500 having already reported results, earnings are currently on track to have grown just under 11 percent from a year ago, according to the latest Thomson Financial forecasts.

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