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 and Bank of America. Google Inc is also due to report.
“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 per cent in the first quarter and is up 2.6 per cent 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 per cent, 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 US 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.
