The coming week may well be a turning point for the stock market and its March rally.
After three weeks of gains based on signs that the economy might be turning around, investors will get a batch of reports that could provide more evidence of whether the recession is easing or not. Among the data: the government's report on how many jobs were lost last month and the Institute for Supply Management's assessment of the health of the manufacturing and service sectors.
If the numbers come in better than forecast, many investors are likely to keep buying, placing further bets that a recovery might indeed be in its very first stages.
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But analysts say upbeat reports might not necessarily set off a huge advance. Wall Street faltered on Friday, a sign that investors are buying with caution, not abandon.
"If we see upside on the data, we might hold — or rally some more," said Doug De Groote, a managing director at United Wealth Management, a division of United Capital Financial Advisors.
Reports that come in weaker than expected are likely to take the market down. Wall Street's rally was fed in part by surprising gains in housing and factory orders numbers, and numbers that imply the recent data was a fluke could send investors out of the market again.
Still, analysts do see an improving tone on Wall Street that is due to more than economic data. De Groote said much of the market's advance came because of the government's efforts to help the credit markets and economy. On Monday, when the government released details of its plan to purchase toxic assets from banks, the major indexes rose about 7 percent.
"There's a lot of rhetoric out of Congress giving hope we'll get through this," said Roy Williams, chief executive of Prestige Wealth Management Group.
Last week, the Dow Jones industrials gained 6.8 percent, the Standard & Poor's 500 index picked up 6.2 percent and the Nasdaq composite index rose 6 percent.
The most critical report of the week comes Friday, when economists expect the Labor Department to say that 640,000 jobs were cut last month. The unemployment rate is expected to have risen to 8.4 percent from 8.1 percent in February, according to the consensus of economists polled by Thomson Reuters.
But before then, on Wednesday, the Institute for Supply Management issues its report on the manufacturing sector's performance during March. A key figure that the market will be looking at is the new orders component of the overall ISM manufacturing index; that is usually a harbinger of manufacturing activity in the near future. Investors will also want to know from the ISM report if the government's surprisingly strong February durable goods orders report issued last week was a sign of things to come.
The ISM report is based on a survey of the group's members, corporate purchasing managers at big industrial companies. The ISM this week also will issue its March report of the service sector, on Friday.
Housing data have been showing signs of unexpected improvement, including last week's reports on new and existing home sales, and that has also fed the March rally. This week brings three reports on housing. The Standard & Poor's/Case-Shiller January index of home prices is due out Monday; the National Association of Realtors releases its pending homes sales index for February on Wednesday; and the Commerce Department releases a report on February construction spending, also on Wednesday.
For Wall Street, what happens in the housing industry reflects more than Americans' willingness to make big financial commitments. While that's critical for the economy to heal, a pickup in home sales would also point to an easing of the now six-month-old credit crisis.
"Housing is real important to the stabilization of broader markets," Williams said.
The data comes out just ahead of the start of earnings season, in which investors expect companies to show continued struggles. In an economy driven by consumer spending, if people are out of work and not spending money, corporate earnings are likely to be weak, De Groote said. That could shift the tone on Wall Street back to negative from the recent positive views, he added.
For many investors, the most critical part of companies' reports won't be their first-quarter performance, but their outlooks for the rest of the year. If their outlooks are disappointing, or if they're unable to make forecasts, the market's rally will most likely come to an end.