GM Generali

By Lisa Twaronite

April is the cruelest month, the poet T.S. Eliot once wrote, and stock market investors are hoping next week won't live up to that epitaph and dash the hopes of those who believe the current uptrend will continue.

Next week isn't the first full trading week of the month -- markets will be closed on Friday in observance of Good Friday -- but it will bring the official kickoff of what will likely be a grim first-quarter earnings season. It will also bring trade data and the minutes of the U.S. Federal Open Market Committee's March policy meeting, which could provide more clues about whether a bottom for the U.S. economic downturn is anywhere on the horizon.

The earnings reports "will be a real test to see if the current rally is just a technical rally within the overall context of an ongoing bear market or the first leg of a new bull market," said Frederic Dickson, chief market strategist, Davidson Companies.

Over the last four weeks, the Dow Jones Industrial Average (DJI) has risen 20.35%, capping the first four-week stretch of positive weeks since the period ending in October 12, 2007. The Dow's latest percentage gain was the biggest for any four-week winning streak since 1933.

On Friday, stocks ended with modest gains. The Dow added 39.51 points, or 0.5%, to end at 8,017.59, bringing its weekly advance to 3.1%.

The S&P 500 Index (SPX) rose 8.12 points, or 1%, to settle at 842.5, up 3.3% for the week. The Nasdaq Composite Index (RIXF) gained 19.24 points, or 1.2%, to close at 1,621.87, for a weekly advance of 5%.

The Dow ended above 8,000 for the first time since Feb. 9, but it's the broader S&P 500 that many market analysts are watching for a turnaround signal.

"Any close above 850 for the S&P 500 next week, then it's would be safe to say the bear market has ended, and we can work our way higher," said Peter Cardillo, chief market economist at Avalon Partners.

Low expectations

Expectations for upcoming corporate results are low, analysts say, with lots of negative news already factored in.

Analysts surveyed by FactSet Research on average expect earnings at S&P 500 companies to be down 35.9% from the year earlier quarter. Those surveyed by Thomson Financial expect earnings to be down 36.6% from the year earlier.

For the first time since Thomson began tracking results in 1998, all 10 sectors of the S&P are expected to post negative year-on-year comparisons.

"Corporate America is about to let us know how it did, and we'll be hard-pressed to have that news match the [recent] stock action," said Art Hogan, chief market strategist, Jefferies & Co.

Aluminum giant Alcoa Inc. (AA), a Dow component, will report its first-quarter earnings after the bell on Tuesday. Energy behemoth Chevron Corp. (CVX) will be on deck late Thursday.

Also reporting next week will be healthcare systems provider Immucor Inc. (BLUDE) on Monday, basic-materials producer Mosaic Co. (MOS) on Tuesday and retailers Family Dollar Stores Inc. (FDO) and Constellations Brands Inc. (STZ) on Wednesday.

"I do expect during earnings season we could have some minor pullbacks, because first-quarter earnings will be disappointing, and there will be no major shifts in terms of guidance, as corporate America will continue to be cautious," Avalon's Cardillo added.

But positive surprises could come from financial firms, and perhaps even from the broader market, after recently adopted changes by accounting regulators.

"Look for possible upward revisions for the earnings of the market as a whole, as new mark-to-market rules are put into effect," commented William Knapp, investment strategist for MainStay Investments.

Last Thursday, in response to pressure applied by lawmakers on Capitol Hill, the Financial Accounting Standards Board voted unanimously to give auditors more flexibility in valuing illiquid mortgage assets that may have long-term value.

Banks complained that they have viable assets with strong cash flows that can't be sold because there is no market for them, so the move is expected to be a boon for banks' first-quarter earnings.

The week ahead could also bring announcements of changes to as many as three Dow components, with many expecting Citigroup Inc. (C), Bank of America Corp. (BAC) and General Motors Corp. (GM) to be ousted from the blue-chip index.

Goldman Sachs Group (GS), Cisco Systems Inc. (CSCO), Apple Inc. (AAPL), Wells Fargo & Co. (WFC) and FedEx Corp. (FDX) have been cited by analysts as possible replacements.

Hopeful signs in data

One hopeful sign that the current uptrend might be sustainable was that Friday's gains came in the wake of dismal jobless data.

The Labor Department said U.S. nonfarm payrolls fell by 663,000 in March, close to expectations, while the unemployment rate jumped to a 26-year high 8.5% from 8.1%, as expected. The losses brought the total number of jobs lost since the recession began to 5.1 million.

"The market managed to basically overcome the whopping decline in jobs, which is a good indication that we're probably going to hold most of the gains," according to Avalon's Cardillo.

Although employment data remain grim, signs of a nascent recovery have appeared in recent weeks in leading economic indicators, such as consumer spending, building permits, factory orders, stock prices and consumer expectations.

Thursday will bring data on trade, chain-store sales and the latest weekly jobless claims.

"Expect further weak trade flows and employment numbers, with possibly encouraging signs on consumer spending," said MainStay's Knapp.

The Commerce Department will release its report on the February U.S. trade balance, and analysts polled by MarketWatch are looking for a deficit of $35.5 billion -- the narrowest deficit since October 2002. In January, the trade deficit hit $36 billion.

While downward pressure on exports is easing somewhat, imports continue to be hit by ongoing weak consumer demand and lower oil import volumes, economists say.

Congress will be out next week on its spring recess, but on Wednesday the Federal Reserve will release the minutes of the March FOMC meeting.

At that meeting, the central bank said it would buy $300 billion in longer-term Treasury bonds to help arrest a deepening slide in the U.S. economy, a surprise move that sent stocks soaring.