Bulls try to run for week 8
The Dow industrials have surged for 7 weeks straight. Will the advance continue?
NEW YORK (CNNMoney.com) -- The Dow industrials have rallied for seven weeks straight, and while many Wall Street pros think it could be time for a retreat, it probably won't happen in the week ahead.
This week is pretty light in terms of scheduled events, with a few economic and earnings reports likely to take a back seat to U.S.-China trade discussions.
Meanwhile stocks should be able to continue rising, thanks to the momentum that's been in place for some time.
"Earnings have been stronger than expected and that's making the valuations of Corporate America reasonable," said Timothy Ghriskey, chief investment officer at Solaris Asset Management.
The earnings and a wave of mergers and corporate stock buybacks have all contributed to lift stocks over the last few months.
The Dow Jones industrial average ended last week at a record high for the 24th time this year. Between mid-April and early May the Dow rose in 24 of 27 sessions, its largest up stretch in 80 years.
The S&P 500 ended last week five points short of its all-time high, which was hit in March 2000 at the tail end of the last big rally, fueled by the late-1990s bull run.
"The big risk is a correction, and it's something that investors have been looking for," Ghriskey said. "But when everyone is looking for a correction is when it's unlikely to happen."
He said that even if there is a selloff in the next few weeks, investors would probably use it as an opportunity to jump back in at lower levels. That's essentially what has happened in the two months since the last big selloff - in late February through the first week of March.
Looking forward, on Monday, Richmond Federal Reserve Bank President Jeffrey Lacker is expected to speak about inflation, important for investors looking for signs that pricing pressure is easing enough for the Federal Reserve to consider cutting interest rates later this year.
April readings on durable goods orders and new and existing home sales are all due Thursday and will dominate that day's trading.
A smattering of retailers report first-quarter earnings, led by Lowe's (Charts, Fortune 500) on Monday, Target (Charts, Fortune 500) on Wednesday and Gap (Charts, Fortune 500) on Thursday. However the reports are unlikely to change the perception that retail earnings in the quarter were pretty uninspired as a whole. Many chains have already reported lackluster first-quarter earnings and weak April sales. (See chart for details).
Additionally, most of the S&P 500 companies have already reported results. This last batch won't alter views that while the pace of earnings growth is certainly slowing, the decline was nowhere near as aggressive as analysts had forecast.
The most interesting of the week's events could be the two-day talks between U.S. and Chinese officials regarding trade relations. The "strategic economic dialogue" led by Chinese Vice Premier Wu Yi and U.S. Treasury Secretary Henry Paulson takes place Wednesday and Thursday, and is a follow-up to similar discussions in Beijing at the end of last year.
"I think the next catalyst for the stock market could be the dialogue with China," said Jeffrey Kleintop, chief market strategist at LPL Financial Services.
Among the issues on the docket are the growing trade deficit with China, which hit $235 billion last year, in connection to its undervalued currency, the yuan.
U.S. businesses have complained that the low-priced yuan makes it too hard for them to compete with cheaper Chinese imports. As such, U.S. lawmakers have been pushing toward compelling China to let its currency rise. On Friday, China made a step toward this, allowing its currency to rise fractionally, but Corporate America is looking for a faster fix.