Investors will look to corporate profits and outlooks next week for confirmation the S&P 500 has another leg to its rally as the earnings season gets under way.
Dow component Alcoa will launch the earnings season after the closing bell on Monday in what is expected to be another solid round of corporate results.
The aluminum producer is expected to report quarterly earnings of 27 cents per share on revenue of $6.07 billion, according to Thomson Reuters estimates.
Some top financial names are also expected to report next week, including JPMorgan Chase & Co
Earnings are what the market is all about. Earnings are critical in here, guidance is critical in here, the conference calls are critical in here, said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
In terms of earnings and sectors, you basically want to be with those people who have the ability to raise prices or are participating in the commodity price increases, he said. And you really don't want to be in those people who have the input costs increases and are going to see their margins squeezed by rising commodity prices.
Market analysts have found encouragement for a strong earnings season from the relatively light amount of company preannouncements, leading to the belief that surging commodity costs have yet to compress margins and impact corporate profits.
The Reuters/Jefferies CRB index rose 8 percent in the first quarter and is up 2.6 percent so far in April, and hit its highest level since September 2008.
The S&P 500 <.SPX> has recouped all of the losses suffered in the wake of the Japanese earthquake on March 11 but has been unable to convincingly muscle past the 1,333.58 level, a technical resistance point representing double the 12-year low hit on March 9, 2009.
The benchmark index was relatively flat for the week, down 0.3 percent, as the prospect of a government shutdown kept the rally at bay.
Investors braced for a possible government shutdown as the White House and Congress scrambled on Friday to break a budget impasse ahead of a midnight deadline. But analysts said that while a U.S. government shutdown, which would idle hundreds of thousands of federal workers, would be short-term negative, the market had managed to rally even ahead of the looming deadline.
There is an intellectual concern of what it means to shut down the government and there is the uncertainty of how long does the government get shut down and how much of a (hit) do we take on GDP growth, said Phil Orlando, chief equity market strategist, at Federated Investors, in New York.
Many traders circled short-term puts on the SPDR S&P 500 Trust
Shares of the exchange-traded fund, also called the Spyders, fell 0.3 percent to $132.86 in afternoon trading on Friday. The fund's Weekly $133 puts traded more than 96,000 contracts, surpassing their open interest.
Frederic Ruffy, a strategist at WhatsTrading.com, said the positions likely reflected hedges against weakness due to fears of a shutdown.
Investors will also eye a batch of economic data next week, providing more insight into the economic recovery, including the consumer and producer prices indexes, the Reuters/University of Michigan consumer sentiment index and the Federal Reserve's Beige Book of economic activity.
The inflation numbers will certainly be important -- producer price index and consumer price index -- the expectation is inflation will be higher than the Federal Reserve will feel comfortable with, said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, New York.
The focus next week will clearly be on the earnings numbers and the economic numbers and that is where the focus of the market should be.
(Additional reporting by Doris Frankel; Editing by Leslie Adler)