The wait for news about the government's stress tests of big banks and a crush of earnings reports are likely to keep Wall Street on edge this week.
Investors whose burst of optimism sent stocks higher Friday will see if their bets, which came in part on some stronger-than-
"Companies that are being challenged will continue to be challenged, but the market is looking past what happened last quarter and looking more ahead to what's going to happen later this year," said Douglas Morgan, CEO at Hoffman Meyer Associates in Seattle.
Among the hundreds of companies due to report are big names including Aetna Inc., Exxon Mobil Corp., MasterCard Inc., MetLife Inc., Pfizer Inc., Reynolds American Inc., Starbucks Corp., Sun Microsystems Inc. and Visa Inc.
Little glimmers of hope last week, Ford Motor Co.'s loss wasn't as bad as analysts had forecast and Apple Inc.'s results surpassed expectations, allowed investors to set aside some worries about the economy. That helped feed Friday's rally that lifted the Dow Jones industrials nearly 120 points.
The rally helped the major indexes largely recover from heavy losses earlier in the week. The Dow lost 0.7 percent over the course of the week, falling 55.04 points to 8,076.29. The Standard & Poor's 500 index ended the week down 0.4 percent, slipping 3.37 points to 866.23.
But earnings season, normally a nervous time on the Street, is particularly difficult as investors try to get some sense from companies of when the recession will ease. And the reports that pleased the market last week might be sloughed off this week -- analysts say there is a danger that traders could start to hit the "sell" button if they're no longer impressed by companies that beat meager expectations.
"Everyone is playing this guidance game right now where they are setting the bar low so they can meet the bar," said the Hoffman Meyer Associates CEO. "That can only last so long."
Meanwhile, the market is waiting for more information about the stress tests the government is giving the 19 largest U.S. banks. Regulators briefed bank officials Friday about the tests, which are designed to determine which banks may need further help from the government, and Federal Reserve officials told reporters that the banks will be required to keep extra capital reserves in case losses continue to climb. That means some banks will likely have to raise additional cash.
Results of the tests won't be announced until May 4, and investors are likely to be increasingly nervous about bank stocks in the meantime.
"There is going to be tremendous speculation and many people pulling out of the sector which could have a negative impact on the markets," said Morgan.
There is also economic data this week, including the Fed's assessment of the economy that will accompany its decision on interest rates after a two-day meeting that ends Wednesday. The Fed is widely expected to hold interest rates steady. Its federal funds rates is already almost as low as it can go, set at a range of zero to 0.25 percent.
"The Fed has pretty much outlined their strategies and they must continue to play the pep rally roll," the Hoffman Meyer Associates CEO said.
Hoffman Meyer Associates is Seattle's leading merger and acquisition, business brokerage firm. As a mergers & acquisition firm, our principals have completed scores of transactions of privately and publicly held companies during the past 25 years.
Over the years, our firm has developed strong relationships with companies and individuals that are ancillary to the mergers & acquisition process including banks, mezzanine lenders, asset lenders, transaction attorneys, certified public accountants, and financial planners. We are also affiliate members of leading merger & acquisition, business valuation, accounting and brokerage associations.
