U.S. stocks could extend last week's retreat after a four-week advance as the earnings season winds down and investors search for signs that consumer spending will help sustain an economic recovery.
Fewer than 50 Standard & Poor's 500 companies remain to report quarterly financial results, including the two major home improvement retailers, Lowe's Companies
The recent evidence suggests consumers have not been a source of strength for improved growth.
Reports last week showed weak consumer sentiment in August and an unexpected decline in July retail sales.
The markets are going to be looking at what kind of signal we're getting on the consumer sector. Because of high unemployment and the high savings rate, there are (worries) that consumer spending is going to be weak, said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.
Economic data this week will include reports on housing, manufacturing and inflation.
Major stock indexes fell last week, but before then, stronger-than-expected earnings had helped underpin a four-week stretch of gains for the market.
I think it's too late to ride the 'we came back from the brink of disaster' rally, said Joseph Battipaglia, a market strategist at Stifel Nicolaus in Yardley, Pennsylvania. Investors would be wise to take profits here.
Last week's light trading volumes could continue and may exaggerate market moves, analysts said.
For last week, the Dow Jones industrial average <.DJI> ended down 0.5 percent, the S&P <.SPX> ended down 0.6 percent and the Nasdaq <.IXIC> finished off 0.7 percent. The S&P is still up about 48 percent from its 12-year lows in early March.
BERNANKE TO SPEAK, EARNINGS IMPROVE
Another factor that could influence the market's direction is a speech by Federal Reserve Chairman Ben Bernanke on Friday in Jackson Hole, Wyoming. He is expected to talk about the financial crisis at the Kansas City Fed Bank's economic symposium.
Stocks rallied after the Fed said last week that the economy was leveling out. But investors will need a new catalyst for stocks to resume their gains, analysts said.
While some economists say they expect to see rapid growth, none of the data is pointing to that, said Fred Dickson, market strategist at D.A. Davidson & Co. Lake Oswego, Oregon. There's going to have to be a pause to let the fundamentals catch up.
The National Association of Homebuilders index for August is scheduled for release on Monday, while housing starts and existing home sales reports for July are scheduled later in the week.
The housing market could have an impact on consumers, and if we see a pickup in the housing market, that could be very supportive, said Len Blum, managing partner at Westwood Capital in New York.
Among other data, the New York Federal Reserve's survey of manufacturing activity will be released on Monday and the Labor Department's Producer Price Index is set for Tuesday.
Estimates for second-quarter S&P 500 earnings were raised modestly, with earnings now expected to decline 28 percent from a year ago compared with 29.5 percent estimated last week, according to data from Thomson Reuters.
That fits with the season's trend, which started with earnings forecast to decline 36 percent.
Thomson Reuters data showed that of the 456 S&P 500 companies that have reported earnings so far, 72 percent have beaten analysts' expectations. Revenues showed less improvement, and analysts have said companies' stronger bottom-line results have come largely from deep cost-cutting.
(Additional reporting by Leah Schnurr; Editing by Kenneth Barry)