Investors head into this week on the defensive as the potential for US equity gains could be limited even if earnings begin on a strong note.
The early fourth-quarter results will set the tone. Any weakness will give traders a reason to pull back from the rally of recent weeks, which stalled on Friday on bank stock losses and lacklustre jobs data.
Still, the major indexes finished with a sixth straight week of gains: the Dow was up 0.8 per cent, the S&P 500 up 1.1 per cent and the Nasdaq composite index ahead 1.9 per cent.
Alcoa is set to release results today after the market’s close, unofficially launching the quarterly earnings season. Intel and JPMorgan Chase & Co, also Dow components, will issue their report cards in the week and are expected to do well.
The S&P 500 has climbed 7 per cent since the start of December while Alcoa has soared 25 per cent and JPMorgan has surged 16 per cent. Analysts say such rapid gains leave the market more vulnerable for a pullback.
The S&P 500 has struggled to break above 1,280, though a floor appeared to be developing around 1,260, the 14-day moving average and near the 2010 close.
This week will also see retail sales data on Friday, which will be closely watched following soft December comparable sales. The Federal Reserve will release the Beige Book mid-week.
The Beige Book, an anecdotal report on the economy by region, comes after Chairman Ben Bernanke gave his first congressional testimony since launching a second round of quantitative easing. He said the economy may finally be hitting its stride even if growth remains too weak to dent the US unemployment situation.