The Dow Jones industrial average is coming off its best week since March after reports from big companies like banker Goldman Sachs Group Inc., chip maker Intel Corp. and International Business Machines Corp. injected fresh hope in the market that the economy could be recovering.
The better-than-expected profits and forecasts pumped up the stock market after a monthlong slide when investors detected few new signals that the economy was improving.
But analysts remain cautious and are hoping the good news won't fade.
"It probably gets tougher as we move further through the earnings season mainly because we get some sectors where the wind might not have been as much as their back," said Jeffrey Kleintop, chief market strategist at LPL Financial in Boston. He said retailers and smaller banks aren't likely to have fared as well as the companies that reported last week.
Corporate heavyweights reporting this week should sharpen investors' view of the economy. Reports on the April-June quarter are expected from American Express Co., aerospace manufacturer Boeing Co., industrial equipment maker Caterpillar Inc. and drug maker Merck & Co. Key consumer companies Amazon.com Inc., Apple Inc., Coca-Cola Co., eBay Inc., PepsiCo Inc. and Starbucks Corp. are also due to report.
Investors also will look to Capitol Hill for direction on the economy. Federal Reserve Chairman Ben Bernanke makes his semiannual report to Congress on Tuesday and Wednesday. Investors want his take on the economy now, and also clues on how the central bank will eventually wean the economy from the emergency supports put in place last fall when the financial crisis intensified. The Fed has slashed interest rates, offered cheap loans to banks and purchased government debt to ratchet down borrowing costs.
Disappointment over what companies or Bernanke have to say could make the stock market stall again. The Standard & Poor's 500 index surged 40 percent from early March until mid-June when investors started asking whether an economic rebound was further off than they had projected. Last week's gains allowed the S&P 500 index to recover the 7 percent it had lost since the market's advance began to lose steam.
The rally got going again last week because company profits and forecasts are some of the most powerful forces in the market. The second-quarter reports have had particular pull over stocks because investors had such low expectations. But analysts warn that the halo of better-than-expected numbers is likely to fade.
"The problem for the market here is that from a fundamental perspective things are not getting worse but they're not getting materially better. And the market needs to see signs that things are getting better to leg up," said Nick Kalivas, vice president of financial research at MF Global in Chicago.
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