If the coming earnings from U.S. retailers are as unimpressive as the rest of the profit season has been, Wall Street could face a tough time justifying a stock market at nine-month highs.
Less than two months into the year, the benchmark Standard & Poor's 500 index has risen more than 8 percent -- and already exceeded many analysts' forecasts for the year.
The problem is the market has not seen as much upbeat news out of this earnings season as it has in recent ones.
Earnings have generally come in more disappointing than they have been, said Robbert Van Batenburg, head of equity research at Louis Capital Markets in New York. I don't think there's a lot of fireworks coming from next week's financial results.
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The S&P 500 closed Friday at 1,361.23, its highest end-of-day level since last May. That was above a Reuters poll forecast in December that the index would finish 2012 at 1,340.
A break above 1,370 would put the S&P 500 at its highest value since June 2008, before the September 2008 collapse of Lehman Brothers Holdings Inc.
The Dow Jones Industrial Average is fast approaching the key psychological level of 13,000, while the Nasdaq Composite index has been trading at its highest level since 2000 as it approaches 3,000.
S&P 500 earnings performance has so far trailed recent quarters in terms of beating Wall Street's estimates. The percentage of companies beating analyst profit expectations is 64 percent, according to Thomson Reuters data.
While that percentage has improved since the start of the earnings season, it is below the average beat rate of 70 percent for the past four quarters, Thomson Reuters data showed.
Next week brings results from top retailers, including Wal-Mart Stores Inc. and Home Depot Inc. Companies in the consumer-discretionary sector so far have a beat rate of 70 percent, above the average for the S&P 500, but many retailers in the group have yet to report.
This holiday-shortened week is seen as one of the last big ones of the earnings period.
With results in from 404 S&P 500 companies, investor focus already may have shifted away from earnings. That leaves a lot of focus on the outlook for Europe and the U.S. economy. Data on existing- and new-home sales is expected next week.
News of a deal for Greece, expected to help that country avoid a messy default, has helped drive stocks higher this week as has stronger data on the U.S. economy.
Reaching Higher Levels
The market's recent run higher has put it at some key technical levels that some say could cause it to stumble.
The market is likely to reach a short-term top, said Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston.
The percentage of New York Stock Exchange stocks trading above their 50-day moving averages is in the 85 percent to 90 percent range, he said, which is typically a signal that the market is overbought. He sees an S&P 500 pullback to the 1,260-1,270 range in the short term.
Some strategists said they would see a break above 1,370 as a key buying opportunity. You break out to 13,700 to 1,380 -- and then you have to say to yourself, 'Something real is happening here.' I'm kind of on the sidelines until I see that, but I will be jumping in if that starts happening, said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.
The CBOE Volatility index, Wall Street's fear gauge, was down 7.5 percent for the day and has been below the 25 level for more than two months, suggesting investors are comparatively unworried about the market's outlook.